Over the past few years there has been an outpouring of progressive proposals for the British economy. From universal basic income (UBI) to a citizen’s wealth fund, it is encouraging that people are trying to find real solutions to the problems of growing inequality, depressed living standards for many, and a generally dysfunctional British economy.

While these ideas have attracted significant debate about their impact on the British economy, there is rarely much discussion about their impact on those living in other parts of the world, namely the global south. When discussing national economic policy, we seem to assume that our economies operate in isolation, and rarely reflect on their place in a global division of labour.

However, putting these national policy options into a global context gives rise to many questions, especially when capitalism is considered as an imperialistic world economic system. To put the key question bluntly: should we support basic incomes or citizen’s wealth funds that might reduce inequality in the UK even if they are at least partly funded through exploitation in the global south?

Globalisation or global imperialism?

It is a strand of Marxian economic theory called dependency theory that has been most dedicated to understanding capitalism as imperialistic. Dependency theory took off in the 1960s and went out of fashion in the 1980s, but now its more useful parts are being revived to explore how imperialism works in the current age – i.e. through globalisation.

Imperialism in this sense doesn’t just refer to formal empires such as those of 19^th century Europe, but describes some countries benefiting from the extraction of resources from other countries. Dependency theorists argue against mainstream development theory, which claims that if developing countries improve productivity and tackle corruption, they will ‘catch up’ to the developed world. Dependency theory argues that, on the contrary, it is impossible for third world countries to ‘catch up’ because the wealth of the first world is achieved at the expense of the underdevelopment of the third world. In other words, our gain is their loss.

While agencies like the IMF claim that globalisation has been a gift to developing countries, dependency theorists argue to the contrary. There are several dimensions along which this sort of domination has been said to take place.

Global production

Transnational corporations make their profits by paying ultra-low wages in the global south – often pushing wages below the cost of living – and selling at much higher prices in the global north. Corporations are big winners in modern-day imperialism, but the GDP of countries in the global north also benefits.

Tony Norfield, author of the acclaimed book The City, tells the story of a T-shirt made in Bangladesh and sold in Germany by H&M for €4.95. H&M pays the Bangladeshi manufacturer €1.35 per shirt. 40 cent of this covers the cost of importing the cotton from the US. Thus only 95 cent of the final sale price remains in Bangladesh, to be shared between the factory owner, the workers, the suppliers of inputs and services and the Bangladeshi government, expanding Bangladesh’s GDP by this amount. 6 cent is spent on shipping costs to Hamburg, and the remaining €3.54 counts towards the GDP of the country where the shirt is consumed: Germany. €1.99 goes towards distribution costs, shop rent, sales force, marketing and administration in Germany. H&M makes 60 cent profit, and the German state captures 79 cent of the sale price through VAT at 19%.

The German state will spend its piece of the pie on its own citizens, military and companies (in the form of ‘corporate welfare’), and it will even give ‘a few pennies to the poor countries in the form of “foreign aid’’ . It is this dynamic that has led some analysts to claim that the way global production is currently organised fundamentally benefits some parts of the world at the expense of others.

Global finance

Norfield has also shown how a country’s financial sector can enable that country to gain privileges in the world market. He argues that out of some 200 countries in the world, only around 20 count as major players in global affairs. He has ranked countries according to an ‘index of power’ in the world economy. The index adds up countries’ nominal GDP, stock of Foreign Direct Investment outstanding, cross-border lending and borrowing by banks, use of currency in international markets, and military expenditure. Because of how vast and international its banking sector is, Britain comes second in the rankings (though dwarfed by the US). Britain’s huge financial sector helps offset its chronic current account deficit. Alongside global production, financialisation is therefore central to present-day imperialism.

Tax havens

Although tax havens may appear marginal to the financial system, Nicholas Shaxson has shown that they have been at the heart of the growth of finance capitalism. Tax havens are key vehicles for modern imperialism. Britain controls a ‘spider’s web’ of offshore centres based in its former colonies.

Moreover, developing countries lose vast sums through the use of tax havens by individuals and, above all, transnational corporations – most of which are headquartered in Western Europe, the US and Japan. The Global Financial Integrity (GFI) programme estimates that developing countries lost $1.2 trillion in illicit financial flows in 2008 alone. This is compared to $100 billion in total foreign aid. In the words of the GFI’s Raymond Baker, “for every dollar we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table”.

Global governance

The global justice movement has long argued that the agencies of economic globalisation – the World Trade Organisation (WTO), the World Bank (WB) and the IMF – have benefited the global north at the expense of the south. The WTO sets the rules for world trade, and these have been accused of favoring rich countries. For example, while all the other WTO agreements formally aim to promote free trade and competition, the agreement on intellectual property (TRIPS) is protectionist, seeking to protect profits on patents – which happen to mainly be registered in rich countries.

When an economic crisis arises, the IMF and WB step in with loans in return for the now infamous ‘structural adjustment’ programmes. These have included privatisation, cuts to public spending, removal of subsidies on basic items, opening up the financial sector to foreign ownership, and labour market reforms to push down wages. It is corporations based in the global north that largely benefit from these reforms.

***

How money flows in the global economy, and who benefits, is a complex and hotly contested issue. But this doesn’t mean we should ignore it. We need to start asking where the money for our lovely hypothetical basic incomes and social wealth funds is coming from.

It is vital to develop progressive national economic policies, but do we really want to benefit from policies that come at the expense of people elsewhere? If not, any debate about such policies should be rooted in the ongoing debates about global justice. There are many ideas about how to decolonise the economy, from global taxes and regional minimum wages to tackling tax havens and ‘deglobalisation’ – the replacement of current global governance agencies with regional institutions or a fairer international system. If we are serious about economic justice, debates about UBI and other national economic policies must start taking place alongside these wider global discussions.

The post Why global justice must lie at the heart of the debate about Britain’s economic future appeared first on New thinking for the British economy.

UPDATE: after this article was published, debates on both the EU-Canada and EU-Japan deal were taken off the parliamentary agenda. It is expected that they will be brought back to parliament soon.

This Monday, MPs will be asked to debate and vote on two EU trade deals with Canada and Japan. The government will argue that this is all about stability for business and normal because we remain an EU member until the end of the transition period. We must not be fooled: tabled ten months before the transition period and in the midst of Brexit mayhem, this is a cynical move to quash debate about the democratic processes for – and the content of – the UK’s future trade deals.

Let’s start with the argument that signing on to the EU-Canada (CETA) and EU-Japan (JEFTA) trade deals sends a strong signal to business that the UK is serious about maintaining stability as it enters the transition period. In fact, the opposite is true. The government has delayed, beyond all reasonable expectations, bringing its Trade Bill back to the Commons. The Bill is extremely limited in scope, but it does seek to establish the transfer of EU trade deals into UK law. Not bringing it to parliament means that, ten months before we enter the transition period, when we are allowed to start formal trade negotiations, we still don’t have an adequate procedure in place to govern the transfer of EU trade deals into UK law. More importantly, there is no agreement from partners that they are prepared to do this without making changes to the text. There is also no indication from the UK government about the kind of trade deal it wants nor how it will incorporate expertise from business or civil society into the negotiation of those trade deals.

Is this a normal part of our ongoing EU membership? Absolutely not. For the blatantly obvious reason that we are no longer normal members. There is no requirement to rush into ratifying these deals, indeed it is likely to take other countries much longer and there is uncertainty about whether Italy will sign at all. Most importantly though, ratifying now ties us into provisions in the deal for a further twenty years, not least of which is giving companies registered in Canada the ability to sue the UK through private courts. It is hard to describe this as anything other than sheer foolishness.

There is then a significant question about why the government would seek to ratify a deal that might not come into force before we leave the EU, that we might not be able to replicate but that we would not be able to totally extricate ourselves from for a couple of decades.

There are two likely answers. First, the government can be pretty certain that the deals will be voted through, not because MPs have carefully considered their contents or implications but because the politics of Brexit overrides everything else. Remainers will likely vote for it because it looks like it keeps us close to the EU. MPs worried about seeming anti-business or anti-trade will vote for it to shore up their credentials in that area. For Labour, this means ignoring MEPs like Jude Kirton-Darling who have spent much more time considering the deal. For Conservative Brexiteers, this means reinforcing the kind of doublethink that has characterised their positions since the referendum: we want to leave the EU because we don’t like it but we like trade liberalisation so we’ll sign up to EU deals anyway.

What is of huge concern to organisations like the Trade Justice Movement, is that rushing these deals through now will allow the government to claim that MPs have no issues with the current criminally weak procedures for agreeing trade deals. These procedures allow the government total control over decisions like what partner countries we will trade with, what will be in the deals and whether or not we sign. Parliament’s role is symbolic at best and there are no structures and no real expectation that civil society should have a voice. If you’re an MP voting through CETA and JEFTA, you are in effect saying that you’re fine with that.

Finally, a vote in favour of these deals on Monday also sends a signal that MPs are happy with them as a model for future UK deals. Yet these deals lock in the privatisation of public services (because they contain something called a ‘negative list’), which means Labour can forget its proposals to renationalise the railways. They require the UK to consult with partner countries and business on any proposed regulation, shifting power away from ordinary people and politicians, and they give corporations registered in Canada and Japan the right to sue the UK if a change in our regulations negatively impacts on the profitability of their investments.

Trade deals are no longer just about the movement of goods around the world, they cover many areas of everyday life. Ratifying CETA and JEFTA will threaten our ability to decide how we run our public services and the kinds of standards we want for our food, health, labour and environment. It is beyond undemocratic to rush a vote through that will tie us in to liberalisation in these areas. Politicians need to set aside their Brexit straightjackets and reject the deals.

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On May 8^th the government will end its consultation period on a new agricultural policy for England. Revealingly, its policy document – called ‘Health and Harmony: The future for food, farming and the environment in a Green Brexit’– has more to say about the environment than either food or farming. The Department for Environment, Food and Rural Affairs (DEFRA) wishes to end the direct subsidies that farmers have received under European Union policies, and environmental schemes are at the heart of its proposals.  The policy seems likely to go through, with firm support from environmental groups.

But this is curious in two ways. Policy for the environmental consequences of agriculture is very important.  As we read this week, “In the past 50 years in Britain, through the intensification of agriculture, we have destroyed well over half of our biodiversity, and the populations of birds, butterflies and wild flowers that once gave the landscape such animation and thrilling life have been utterly devastated”.

The measures will be beneficial and they flow on from those of the EU’s Common Agricultural Policy (CAP), 87 per cent of which in England now goes to agri-environment schemes. However, they mainly concern indirect effects of agriculture. DEFRA has little to say about its immediate impacts on the soil itself and through emissions of methane and other greenhouse gases. The report’s 64 pages make no mention of the damage done to soils by modern industrial agriculture as such.

Soil scientists now understand the varied roles that soil microbes play in these areas and more: nutrient cycling; carbon, nitrogen and phosphorus utilisation; carbon sequestration; methane mitigation; soil fertility; and plant nutrient density. Carbon sequestration means a healthy soil will counter climate change since it absorbs carbon dioxide. This has stimulated a farming method called regenerative agriculture, which rebuilds organic matter and restores biodiversity in the soil, ‘resulting in both carbon drawdown and improving the water cycle.’ But DEFRA says nothing about that.

Meanwhile, the vital minerals found in food grown on British soil have reduced sharply. In 2006, it was reported that since 1940 the amount of iron in the average rumpsteak, for example, had dropped by 55 per cent and magnesium by 7 per cent. Cheddar cheese provided 9 per cent less calcium, 38 per cent less magnesium and 47 per cent less iron.

The second curious aspect is that the government largely ignores the complicated economics of food and agriculture, at the heart of most agricultural policies since the 1930s.  In the eight chapters defining new policies in DEFRA’s paper, more than three times as much space is devoted to environmental issues (including animal health) as the economic ones which affect farmers’ and farmworkers’ own livelihoods. Originally, policies were introduced to reduce price volatility and ensure that farmers had secure incomes, enabling citizens to have more reliable supplies of food. Global concern with food security was reinforced by the big spike in cereal prices in 1972-74. But by now, few politicians see agriculture as of much consequence since it accounts for only 0.7 per cent of UK gross domestic product and 466,000 jobs, or 1.5 per cent of UK employment in 2016 (of which 302,000 in England). The countryside seems to matter more for its visitor attractions.

However, the state of agricultural prices and farmers’ incomes is worrying. English farms are highly capitalised, but in the last three years they made annual profits of just £37,000 on average. Of that, 30 per cent came from non-agricultural activities and an astonishing 61 per cent from direct payments under the CAP: from agriculture itself, the average farm lost £700 per year. Even in nominal terms, total income from farming is less than half of what it was in 1995. Meanwhile, farmers’ median age is 59 and one-third are over 65, with only 3 per cent under 35. But to survive the end of EU direct payments, DEFRA offers only a pious hope, not a policy: “Removal of Direct Payments may be offset in a number of ways, including farm efficiency improvements and diversification, although this will vary by type and location of farm.”

Average income (£) from agriculture for cereal farmers, 2003-04 to 2016-17

Source: DEFRA, ‘The Future Farming and Environment Evidence Compendium’, p. 26.

Nevertheless, farming people are widely rumoured to have voted to leave the EU, although the actual evidence is mixed and it appears likely that they voted around 50:50. Farmers’ votes to leave would mirror the paradoxical finding that it was the regions most dependent on European markets that voted most keenly for Brexit. One explanation might be that farmers do not like depending on subsidies and the subsidies are associated with the EU, therefore they rejected the EU. The National Farmers Union itself recommended a vote to remain.

Higher farm prices and incomes are now needed for the sake of farmworkers as well as farmers. This is a global problem. Domestic agricultural prices largely reflect international prices, which have been the most volatile in their long history of volatility over the last 15 years. At the end of that, real prices are no higher than in the mid-1960s, according to the main global reference, the Food and Agriculture Organisation’s Food Price Index.

UN FAO Food Price Index, 1961-2018

Source: U.N. Food and Agriculture Organisation

The FPI is based on prices of foodstuffs as they cross international frontiers. However, because of corporate concentration, especially in retailing, the share of those prices received ‘at the farm gate’ is substantially less than it was. Farmers are price takers, squeezed by powerful businesses on either side of their activity. Not only do they receive less of the traded price for their outputs than in the past, but the real prices of essential inputs for industrial farming, such as fuel, agro-chemicals and fertilisers have gone up sharply (tropical farmers who supply coffee, cotton and cocoa to world markets have fared even worse).

Percentage changes in certain real average commodity prices 1984-86 to 2015-17

Sources:  Author’s calculations, using data from the World Bank

This even affects US farmers. In the most recent year only one out of nine major US crops – rice – covered its production costs, and then with no profits. Cotton, barley, oats and sorghum did not even cover their costs during the price boom ten years ago. The university which published these figures called the current situation ‘normalcy’, but other American academics disagreed. As one of them reported, in 2016 the US Centers for Disease Control found “that the occupational group farming, fishing, and forestry had the highest suicide rate of any occupational group” at 84.5 suicides per 100,000 persons.

Ratio of gross revenue at harvest to all costs, USA, 2003-2016

Source: University of Illinois at Urbana-Champaign, March 21st, 2018, citing the U.S. Department of Agriculture

Something similar is happening in the Indian Punjab – heart of the Green Revolution, which is reputed to have made many Punjabi farmers wealthy in the 1970s and 1980s.  By now, the controversy there is over the number of farmers and farm labourers who are taking their own lives. University studies show this to have been 542 over 2013-16, twice the official figure. Major causes of suicide are reported to be bankruptcy, debts and ‘farming-related issues.’

Nevertheless, the wider backlash against neoliberalism has not touched the sanctity of market mechanisms in agriculture, even though the markets that serve it fulfil their purpose of balancing supply and demand through the price system only fitfully. There is official pressure to develop large corporate units, like those in Californian dairying, still based on modern industrial inputs and equipment.  Price volatility is to be accommodated by ‘hedging’ on futures and derivatives markets as well as commercial risk insurance, without any public interventions.

But in Britain, the urgency of the situation is seen in a chronically weak balance of payments, part of which is a deficit in food trade.  In 1984, before the CAP reforms began, the UK had risen to 78 per cent self-sufficiency in all food and 95 per cent in ‘indigenous’ foods, based on international prices. Ten years ago this had fallen back to 60 per cent and 74 per cent respectively and it has stabilised at around that level. However, when valued at ‘farmgate’ prices – those actually received by farmers – Britain in 2007 produced only half of the food it consumed.

Origins of food consumed in the UK by value: 2007

Source: DEFRA

The new agricultural policies, in England at any rate, are likely to worsen the precarious position of many farmers (even under the CAP, agriculture has been a devolved power in the UK). The CAP’s import duties and ‘intervention’ prices above market levels brought an end to the UK’s ‘Cheap Food’ era, which started with the repeal of the Corn Laws in 1846.  The CAP replaced a previous policy which was designed for British needs as a food-importing country. This supported farm incomes with ‘deficiency payments’ to farmers when their costs for a crop were above the import price.

In addition, marketing boards – despite their name – took distribution and pricing essentially out of market hands, with prices negotiated year by year between all sides of the business.  They started with the Milk Marketing Board in 1933, when market concentration had enabled dairies to force down the prices they paid to farmers – just as in recent years. The MMB ensured the production, distribution and availability of good-quality milk and dairy products at stable prices for over 60 years. These measures were allied with practical, free technical advice to farmers from a government agency.

The economic principles of those interventions were sound, even though they accompanied the shift to industrial farming methods. However, because of the World Trade Organisation’s rules we cannot now go back to a system like that. The UK will be ill-placed to secure any changes in those rules, as just one among 164 member countries.

DEFRA’s current proposals portend a serious crisis in English agriculture, which will be entirely of the country’s own making.  If our farmers cannot afford to continue in business, who will feed the rest of us?

The post Is Britain sleepwalking into a food crisis? appeared first on New thinking for the British economy.

Responding to Paul Mason’s latest essay for openDemocracy, Tomas Hirst argues that globalisation should not be blamed for decades of domestic policy failure.

I expected to find much more to disagree with in Paul Mason’s recent essay, “The second trench: Forging a new frontline in the war against neoliberalism”. But after reading the essay, it struck me as measured, interesting and thoughtful on the whole. However, I found it frustratingly vague in its policy conclusions – which I suspect to be a feature, not bug, of the analysis.

To start with, let’s recall Mason’s five-point analysis of what has gone wrong in the aftermath of the Great Financial Crisis:

1. Rising inequality boosted by the surge in asset values triggered by quantitative easing.
2. Entire sectors dominated by rent-seeking monopolies.
3. A global financial elite clustered around the defence of its strategic privilege – which is to keep its wealth in offshore jurisdictions and unavailable to the tax collectors of nation states, and therefore immune to redistribution.
4. High under-employment and precarious work, as millions of people are employed in what David Graeber calls “bullshit jobs”; real wages failing to keep up with the rising asset wealth of the 1%; and a historically low wage share.
5. A global market that has begun to fragment along regional and national lines; the stalling of trade liberalisation treaties; the Balkanisation of finance systems and the information economy; and the beginnings of an open trade war.

Of these, point 1 is probably the most common and unfortunately least-well supported of the contentions. Income inequality in the UK (net of taxes but before housing costs) did not rise over the post-crisis period but in fact fell as a consequence of bigger hits to higher income earners from the crisis and policy measures including raising the tax-free personal allowance. However, it is reasonable to argue that income inequality, which rose rapidly in the 1980s, remains too high and that wealth inequality is also too high. According to a 2016 paper in Fiscal Studies, the wealthiest 1% of households hold about 20% of household wealth, the top 5% of households hold approximately 40%, and the top 10% hold over 50% of wealth.

Yet, even there it’s not absolutely clear that wealth inequality has “surged” as Mason would have it even in Piketty’s data, though there is compelling evidence that extraordinary monetary policy since the crisis has exacerbated the intergenerational wealth gap.

Moreover, there is an open question as to how we account for the effects of quantitative easing depending on whether you think the programme will result in a permanent increase in the money supply or if it will be unwound, meaning the wealth gains were merely temporary. And we must also deal with the counterfactual problem – what would have happened to the UK economy without the Bank of England’s asset purchase programme?

I am not saying that the UK has an optimal distribution of wealth. Quite the opposite: falling house ownership rates mean there is a generation that will be unable to benefit from collateral value of housing to secure credit, meanwhile overall UK households remain grossly over-invested in residential real estate – a fact that poses huge portfolio risks and creates awful incentives for policymakers. Instead, I’m saying that we should try to keep our arguments as close to the data as possible in order to ensure that whatever policy suggestions we make fit the facts, rather than making the facts fit the suggestions.

On point 2, I think it’s reasonable to fret about the increased concentration of large companies enjoying quasi-monopoly or outright monopoly power within their industries. Indeed Goldman Sachs has even taken a look at the subject and concluded that “a combined drag from the rise in concentration [of products and labour] to annual trend wage growth of around 0.25pp”.

Since we don’t really disagree on either point 3 or 4, I won’t spend a great deal of time on these points, but I think both worthy of serious political consideration. Point 4 in particular poses one of the greatest challenges for policymakers in the 21^st century – how to address increased bifurcation of experience and outcomes in labour markets without either low-pay, precarious employment conditions or persistent high unemployment.

Instead, I want to spend the remainder of this article looking at his fifth point: the fragmentation of global markets and the rise of protectionist nationalism (or should that be protectionism under the guise of nationalism?). Because here is where I think Mason and I are further apart in our analyses.

Mason sees “the rise of authoritarian nationalist projects” as the inevitable consequence of a combination of the failure of neoliberal globalists to provide a compelling narrative about how their policies would improve people’s lives, driving them instead to “populism and xenophobic narratives” expounded by cynical elites looking to take advantage of rising mistrust with the establishment. Or, as he calls it, something of a “reversion to type” for a certain set within the elite who can accommodate both globalist and nation-centric versions of power so long as they remain close to the top of the pyramid.

In this, he appears to be channelling the work of Dani Rodrik, Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University, who has been arguing that the populist backlash against globalisation was “perfectly predictable” as the regressive redistributive effects of liberalisation “swamp the net gains” for the majority.

Both Mason and Rodrik argue for a “limited retreat…from some aspects of globalisation” and reassertion of national economic sovereignty in order to curb the “excesses” and/or the “rigidities” of the current system.

That sounds like a perfectly reasonable suggestion, at first glance. However, as far as I can see, it is impossible to analyse the distributional impact of globalisation without reference to explicit decisions taken by domestic policymakers to redistribute income upwards.

There certainly are aspects of international trade deals that deeply unpopular with supporters of greater political accountability. Not least among these is the creation of so-called “investor-state dispute settlement procedures” or ISDS whereby certain investors can claim monetary compensation from nation states in cases decided by arbitration panels that sit outside the jurisdiction of the countries in question if a country is seen to alter domestic regulatory and/or tax policy in such a way as to impede the terms of the treaty.

The issue for campaigners is not that such arbitration procedures serve no purpose, but that their operations are conducted outside of democratic scrutiny and accountability (by necessity). As Rodrik puts it: “it operates outside accepted legal regimes, gives arbitrators too much power, does not follow or set precedents, and allows no appeal”.

The dogma of capital account liberalisation so prevalent in the ‘90s has also come under, in my view, reasonable scrutiny as it has become increasingly apparent that some capital controls can be of significant benefit to developing countries, especially in managing hot money flows.

But both Mason and Rodrik go further. In his essay, Mason talks about the desire of communities to exit “the globalisation of workforces through migration, or the privatisation of the public realm in the name of trade liberalisation, or the impoverishment of industrial communities through offshoring”, and elsewhere has discussed the need for Labour to ensure that the UK is not vulnerable to “neoliberal judges at the ECJ” in setting policy. Meanwhile Rodrik references the “alphabet soup of regulatory bodies…widely perceived as being rigged against ordinary workers” including “independent courts’ use of their prerogative of judicial review to promote civil rights, expand reproductive freedom, and introduce many other social reforms”.

Given how executive power is currently being wielded in both the UK and the US, one might question the wisdom of putting judicial independence in the same category as unpopular trade treaties. More broadly, given the case being advanced, we should be careful not to fall into crude majoritarian thinking that might threaten progress on hard-won minority rights simply because one group is currently seen as being in the political ascendency.

So, what does a “limited retreat” from globalisation really mean in this context and how does it both blunt the appeal of populism and increase democratic accountability?

The basic question we should look to answer here is whether a partial retreat from globalisation addresses the concerns of voters and whether it can be achieved in a welfare-positive or at the very least welfare neutral manner.

On the first, a recent study into the impact of globalisation by the IMF found evidence to support Mason and Rodrik in that it found diminishing marginal returns to increased globalisation and that efforts at redistribution via taxes and transfers had been “too small to offset the entire rise in inequality caused by globalisation”. We should be extremely wary of reading this result as suggestive that external constraints prevented national governments from enacting more extensive redistributive policies.

Meanwhile, the IMF paper shows that the gains from globalisation have been very real for developed markets and continue to be hugely positive for medium and low-income countries. For low income countries, a one point increase in globalisation is estimated to increase the total 5-year-period growth rate by about 2.2 percentage points, while for the average middle income country the expected growth effect would be 1.8 percentage points.

For those who claim to care about inequality, the impact of wealthy nations withdrawing even partially from international trade or imposing conditions such as no “social dumping” on trade deals could severely impair the catch-up income gains for some of the world’s poorest people. That in itself should give us pause for thought even before we look at domestic distributional issues.

Furthermore, while it’s true that for highly globalised, high income countries the benefit of additional trade liberalisation is found to be limited, that should not be read as implying that the downside to a retreat from trade openness would be equally small. For instance, a recent paper from the LSE estimates that welfare losses for the average UK household even under a soft Brexit Norway-style deal would be around 1.3% with losses rising to 2.7% if the UK trades with the EU under World Trade Organisation rules. The paper notes that effects could understate the impact on welfare significantly once the dynamic effects of Brexit on productivity via significantly lower business investment are taken into account.

This hit to households would come while Brexit is inflicting a likely supply shock on the UK economy as a whole, potentially hitting short-term growth and threaten to limit longer-term growth potential. Both would have the effect of lowering government revenues today and in the future. In other words, the cost of redistributive policies would be higher and the need for them somewhat more acute even under the most modest “retreat from globalisation” envisaged by Mason.

There is also very little discussion of what the mechanism for partial or temporary withdrawal from globalisation would mean in practice. Given just-in-time integrated supply chains, the likelihood of painful trade disruption from even the most modest retreat from existing trade arrangements may make it too economically and politically costly to countenance.

One significant point of concern in allowing the tide of populism to sweep in political reforms is that it is not at all clear to me that the compromise position between illiberal democracy and liberal autocracy necessarily yields greater democratic accountability or welfare enhancements. That is simply an article of faith that Mason and Rodrik would like us to believe.

For example, globalisation and technology clearly did have an impact on the ability of traditional trade unions to control the supply of skilled labour and it has proven extremely challenging for labour to organise itself across national borders. However, the resultant weak bargaining position of labour could well have been compensated for by setting and enforcing higher minimum wage laws, ensuring both out-of-work and in-work benefits were sufficient to avoid immiserating those at the bottom of the income spectrum and ensuring labour regulation was sufficiently robust to prevent increased flexibility from becoming a method of employers casualising their workforce.

None of that was blocked by the “neoliberal judges of the ECJ” – it was simply thought of as insufficiently important before the crisis due to the fast pace of real GDP growth and incomes, while after it has allowed the government to claim that it created an employment miracle. But it was always a policy choice.

It’s hard to see why we should believe that future governments will act more responsibly when loosed from their international obligations than they have in the past – especially given that recent electoral results have favoured parties that advocate weakening the social safety net and shrinking the state. In light of this, while Mason sees the ECJ as an impediment to radical Labour policies he might reflect on what effect removing the UK from its jurisdiction might have if a government came in intent on further weakening labour protections or human rights legislation.

So, while there clearly is scope of great radicalism in domestic policy, I cannot see the case for even a temporary retreat from the basic tenets of globalisation. Rather, the case that must be made is to ensure politicians accept that they are not operating under binding constraints imposed by some supranational treaty or obligation and cannot blame forces outside of their control for regressive policy choices – especially those pencilled in by the UK government during this parliament.

There is also little scope for the UK to address his concerns over the financial elite who hide wealth in offshore jurisdictions without greater international coordination on tax and transparency. Such coordination requires trust, which would be tested by a UK determined to prioritise sovereignty over cooperation and the narrow mandate of a single vote over decades of deep social and economic integration with neighbouring states.

And finally, to Mason’s point that “Europe has to be redesigned to allow state aid, nationalisations, the equalisation of social safety nets and minimum wages”, I would simply add that it is very difficult to aid in a process of redesign when one is walking away from the table.

Retreating from globalisation may seem attractive, but the resulting economic damage would hit the poorest the hardest. There is nothing progressive about that.

The post Retreating from globalisation is not the solution to Britain’s economic problems appeared first on New thinking for the British economy.

Roger Bootle is the founder and Managing Director of Capital Economics, and one of the few high profile economists who supported Brexit. His most recent book, ‘The Trouble with Europe’, was published in 2014. 

In the second of a new series of interviews with leading economists, Roger speaks to openDemocracy about the key challenges facing Britain’s economy, and the economic policies needed to overcome them.

The post VIDEO: In conversation with Britain’s leading pro-Brexit economist appeared first on New thinking for the British economy.

For a sector that rarely gets mentioned unless dead or diseased animals are piling up, food has had a lively political year. New Bills have been passed, and chlorine-washed chicken has been discussed at a Party Conference. The appointment of Michael Gove to the head of DEFRA put fire into the belly of the conservation lobby. We all got a little bit excited.

But the excitement remains tinged with frustration at the lack of a coherent joined-up plan, and so much confusion about just how the government intends to resolve its differences on standards in trade deals. Do we get chlorine-washed chicken or not? US Commerce Secretary Wilbur Ross thinks we must, but Gove says no. It’s almost as if the Doris Day song playing in our ears: “Perhaps, perhaps, perhaps…”

With a transition deal with the EU now likely, it seems possible that we will stay in the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) for that period. So the promised new Agriculture and Fisheries Bills, and Gove’s vision of ecological farming and new marine policies are possibly four years away. Or maybe not?

However, we can make use of the opportunities that do arise. The big animal sentience bunfight has already delivered rewards – a new Bill – and indicated both a shift in Conservative strategy and the impact of people power. But the solutions don’t yet get at the heart of the problem. This, as ever, means following the money and power.

Four food Brexit issues will hit the stands in 2018. They illustrate why politics, finance and food are being increasingly entangled, and why a new vision, policies and partnerships are needed.

What’s going to happen to food prices?

Top of the confusion pile is the impact of Brexit on food prices and availability. The number of food banks is growing and there have been warnings of potential food price increases from industry such as the chairman of Sainsbury’s and, the British Retail Consortium and KPMG. While we still await government impact assessments, one scenario from the farming industry estimates that these additional costs could add 8% to food costs from the EU.

Politicians use this as an excuse to say we need free trade deals with the rest of the world where food (labour) and production is cheaper so we can import what we need. But let’s not spread the misery of cheap food – poor animal welfare, food hygiene, working conditions and environmental degradation – elsewhere. Pro free-traders such as Jacob Rees-Mogg MP also argue that we’ll get cheaper food through low or no tariffs on global produce after Brexit. But it’s a flawed idea. Any potential savings would be cancelled out by a weak pound, currency fluctuations and increased food costs from European countries where we get 30% of our food from. Longer term, our resilience will be poorly served by drawing more land, water and resources from across the globe in the form of cheap raw materials for the food industry.

And it is fair to say food that banks are generally not a function of food prices. They were around and swelling well before Brexit and reflect a problem of low incomes, in-work poverty, precarity and inadequate linking of welfare support to the cost of living. It’s likely that after March 2019, Brexit will be blamed for any food price rises and we need income safeguards for those affected. But any reaction that looks like a ‘cheap food’ policy could cost all of us dear in terms of job losses, food standards, NHS spending, and competitiveness in high calibre international food markets.

Will robots take over or will crops be rotting in the fields?

A fully mechanised food system is some years off, but the government made it clear they want a tech revolution in their new Industrial Strategy. This may help solve the worker ‘issue’; tech and robots will do the hard work us lazy British won’t, and cheap migrant labour may no longer be available. Under the Rees-Mogg model we’ll just import what we need, so no new workers will be needed. Simples.  

How much better would it be to make UK farming attractive for workers and entrepreneurs? It may seem like a pipe dream, but I meet such dreamers often and all they lack is land and support to deliver highly productive farming. From the rise of food pop-ups, new food growing initiatives and the keen interest of the younger generation in food provenance and sustainability, it is clear there is an opportunity here.

But again we need to follow the money. Making the supply chain pay its way (for a start extending and increasing the role of the Groceries Code Adjudicator) is vital, so that producers get a fair share of the pie. So too is stopping tax dodging which sucjs money out of the food system, and ending the massive executive pay gap. These are political decisions without which we can’t make the food system work fairly or sustainably.

What will happen to farm subsidies?

The long-anticipated Food and Farming 25 Year Plan bit the dust in 2017, and the promise of a 25-Year Environment Plan limps on. We are told we will get a new Agriculture Act in late 2018, but that may now be on hold. A new UK Agriculture Bill may have limited power outside of transition EU rules to govern public money or environmental standards for some years to come.

We are drowning in evidence that we could do farm and rural policy better (not just via payments for public goods but capital grants, training, advice, and even new private partnerships for environmental services) which would be better for farmers, their workers, their animals, the environment and for our health. Gove says he gets it, and DEFRA is full of bright new staff getting out and about on farms, listening to us and our members’ ideas. That’s all good and could mean something significant. It must stem the loss of farm businesses. But will it link up with Gove’s announcement of a possible new environmental body and hints of a new Environment Act?  Given that 70% of our land is farmed and farming contributes to air and water pollution, climate change and so on, we really need to see coherence between these two legislative outcomes.

A final word on farming in 2018: we need an extended groceries code adjudicator. The broad network of organisations calling for this could not be more diverse, yet they have worked together to make a clear case that such an extension is vital to end unfair trading practices and help support a wide range of farming businesses in the uncertain years ahead. Give this to Mr Gove.

Food standards: More than just chlorine-washed chicken

Trade deals that sacrifice food safety, animal welfare, reduction of farm antibiotic use, provenance and environmental standards (such as pesticides or nitrates) for the sake of a trade deal on finance or car parts will be toxic. Such messages helped to stop the much loathed Transatlantic Trade and Investment Partnership (TTIP) in its tracks; and never doubt the strength of the big food lobby. Liam Fox MP has flip-flopped on this, showing what a charged debate it is already, and we’ve not even started negotiating any trade deals even if Wilbur Ross thinks we have. MPs need to have oversight of any trade deals and we should look to strengthen food safety machinery, not weaken it. As Sustain said in its evidence to the MPs Environment, Food and Rural Affairs committee Inquiry which showed the difference in salmonella between UK and US eggs; we’ve been losing capacity to check what’s in our food packets for years. We must do better, not simply import tonnes of new unknown junk and contaminated food. In the long term, it will just cost us all far more.

A coherent vision on food could ensure trade policies, farm support and wider measures deliver an affordable food supply that is fair to people, food providers, animals and the environment. And it needs to be well policed.

Do tell your MP what you think on these four hot potatoes, and sign up to Sustain monthly updates here.

The post The politics of food: What to look out for in 2018 appeared first on New thinking for the British economy.

Liam Fox announced a Trade Bill this morning, the day after a consultation on proposals to be included in the bill closed.

What is most vital is what is missing from the bill – the absence of anything to ensure that trade policy is accountable to the public and parliament.

Trade deals today have profound effects across the full range of domestic policy – health, environment, jobs, inequality, and climate. There is a crucial need for a democratic and transparent process for negotiating and agreeing trade deals after Brexit, with parliamentary oversight at its heart.

People understand this. Around 11,500 people wrote to the consultation to ask for trade policy to be accountable to parliament, while over 50,000 more fed in through a petition.

The government’s proposals on trade sought to assure us that none of this is needed because the Dept of International Trade will engage regularly with stakeholders – effectively just asking us to trust them.

Yet today shows how empty that is – when the trade ministry makes a mockery of consultation by bringing the bill to parliament before they’ve even had a chance to read the feedback they have received, how can we believe that they would behave any better when it comes to trade deals. This is why there needs to be a legal requirement and clear procedure to consult the public and get parliamentary approval of trade deals.

The Trade Bill intends to give the government powers to replicate existing EU trade deals. These are already extensive and far reaching deals, and the process of recreating them for the UK is unlikely to be straightforward. Fox admitted last week that there is no agreement with the sixty plus countries involved in the various deals, to use the same texts as the existing EU deals. Such negotiations should be subject to scrutiny by parliament. Yet the Trade Bill will seek to allow the government to introduce them through secondary legislation and executive powers.

The bill doesn’t even tackle the new trade deals that Liam Fox has talked up, such as ones with the US, India or Saudi Arabia. All of these proposed deals need an open and transparent approach – they should only be embarked upon with the agreement of parliament, be open to scrutiny and must be voted on by parliament before signing. Yet at present parliament has no voice in these deals.

That’s why over a hundred MPs have signed an EDM calling for the:

• right of Parliament to set a thorough mandate to govern each trade negotiation, with a remit for the devolved administrations
• right of the public to be consulted as part of setting that mandate
• a presumption of full transparency in negotiations
• right of Parliament to amend and to reject trade deals, with full debates and scrutiny guaranteed and a remit for the devolved administrations, and
• right of Parliament to review trade deals and withdraw from them in a timely manner

This is what needs to be at the heart of the Trade Bill.

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In recent years China’s growing political and economic relationship with African nations has received much media attention. With significant Chinese investments in industrial infrastructure and energy extraction, it’s easy to see why. However, a quiet revolution has also been gathering pace in terms of trade cooperation between Africa and India. Compared to China, India has chosen to centre its strategy towards Africa in the tradition of South-South cooperation where nations and emerging economies in the global south aid one another to greater levels of growth and self-sufficiency.

In the area of food production, India has been using a combination of educational, technological and economic tools to help improve the situation in Africa. At first this was part of its continued policy of solidarity among developing nations but now it has shifted to a strategy to counter Chinese influence on the continent.

At the Festival for New Economic Thinking, Malancha Chakrabarty, an economist and research fellow at the Observer Research Foundation (ORF), gave a workshop on China, India and African Development. In her presentation Chakrabarty discussed India’s more balanced approach to international development based on anti-colonial principles when helping to improve African yields and food production.

Chakrabarty pointed to India’s green revolution where it has seen agricultural production rise and become far more sustainable since the 1960s. As a result of the legacy of empire, debates over population growth and rapid industrialisation, India has had to come to terms with its own issues of hunger, undernutrition, and low productivity. This is why India-Africa collaboration on food security is seen by both groups as the key not only to the development of African agriculture but also to India’s desire to compete with China.

Chakrabarty argued that India will prove that huge injections of capital and industrial investment – the traditional path of development – is not necessarily the future. Different nations will have different concerns, and food security will determine Africa’s development. India also helps Africa’s food output by offering low-cost technology solutions, building storage capacity, developing micro loan policies and providing improved seeds and agricultural machinery.

African agriculture suffers from a range of problems such as low productivity and limited use of modern technology. Although there has been a marginal improvement in Africa’s agricultural performance in the last decade, African farm yields are the lowest in the world with the average farmer in sub-Saharan Africa producing only 1,433 kg of cereals per hectare, less than half of what an Indian farmer produces.

Another reason for growing collaboration between India and African countries is that, although India has made great strides since the sixties, it still falls short on food security. India’s economic philosophy may be self-sufficiency, but in practice it copes barely better than Africa as a whole.

The reasons behind food insecurity in Africa and India are different. Africa’s challenges relate to increasing the production of cereals by improving agricultural productivity and adopting modern agricultural practices. For a continent that holds 65 percent of the world’s arable land it still relies heavily on food imports. According to a 2014 Africa Progress Report, Africa’s food import bill amounted to $35 billion each year. In West Africa, almost 40 percent of the demand for rice is met by imports. This is explained by economists such as Sam Moyo who blame Africa’s food insecurity on nation’s historical over-emphasis on exporting coffee and cocoa instead of production of food crops for self-sufficiency.

The historical significance of this has seen Africa go from a net food exporter during the 1960s to a net food importer in today’s global economy. As a result, many African nations have become extremely dependent on food aid since the 1980s and under the “structural adjustment programme” imposed by the International Monetary Fund (IMF) in that decade, many African countries were also forced to withdraw agriculture state subsidies leading to a drop in agricultural productivity.

In contrast, India’s achievement of self-sufficiency in food production was a constant focus of politicians and economists from the mid-1960s. India’s five-year plan between 1961 and 1966 prioritised self-sufficiency in food grains and increasing agricultural production to meet the needs of industry. This is effectively the opposite of African states today with rapid scrambles to industrialisation and energy extraction with low grain yields.

Chakrabarty argues that India can help African states achieve food security goals with technology and an African green revolution. Firstly, India is attempting to address the research and technology gap in African agriculture. International institutions such as the International Crop Research Institute for the Semi-Arid Tropics (ICRISAT) and International Livestock Research Institute (ILRI) are platforms for Indian-African cooperation in biotechnology. ICRISAT has established agribusiness incubators in five African nations, Angola, Cameroon, Ghana, Mali and Uganda, with India agri-bodies partnering with local bodies.

Supporting academic fundamentals of the agricultural economy India has opened a number of scholarships for African students in India with African scientists trained in the Department of Agriculture Research and Education (DARE) and the Indian Council of Agriculture Research (ICAR). ICAR has for the past few years provided month long customised training in water conservation and utilisation; production of seed, sapling and planting material; livestock production; farm mechanisation and post-harvest processing.

India has also extended credit lines worth $1,1 million towards agricultural development and food security in African countries. An example is a series of loans for projects funded by the Sudanese Agricultural Bank. In turn this funds technical and laboratory equipment at Higher Educational Institutions, scientific equipment for the Sudanese Ministry of Science and Technology, local rural solar electrification and the expansion of Sudan Railways.

Burkina Faso has allowed a 100-percent foreign investment deal with Indian companies being able to repatriation of profits, and new companies benefit from a tax holiday for the first few years. Although seen as controversial by some economists, the expertise of Indian technology is already evident in the improvement of African yields. The result has been a jump in foreign direct investment with around 80 Indian firms investing $2.3 billion in Ethiopia, Kenya, Madagascar, Senegal, and Mozambique. There are plans to invest a further $2.5 billion on millions of hectares in East Africa, to grow products such as maize, palm oil and rice.

Some African countries have gone as far offering land on lease to Indian farmers and a number of farmers from Punjab and Andhra Pradesh have taken up the chance to migrate to these countries. For example, the Andhra Pradesh government sent 500 farmers to cultivate 50,000 acres of land in Kenya and 20,000 acres of land in Uganda.

Chakrabarty’s conclusions may present a puzzle for UK policymakers and civil servants in charge of aid and trade policy with the African continent. The UK’s legacy of colonialism and current debates over the amount and commitment to aid leaves little room to reform the relationship between Western governments and African economic and agricultural development. If smarter agriculture that can strengthen grain yields and account for climate change is the foundation of lasting economic development, than India and China look set to be the main drivers of investment in Africa. This South-South collaboration may not be as turbo charged as the potential gains of Western financial booms but it is tailored to the fundamental needs to African economies.

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Pop quiz: which UK industry is approximately equal in size to sewing machine manufacturing, yet claims to have swung the Brexit vote?

You may have guessed it – it’s the fishing industry. The vociferous complaints of loss of control, sovereignty and access to our waters and fish have become the symbolic talisman of the Brexiteers. But would people have felt the same way seeing Nigel Farage aboard a sewing machine, or a lawnmower – another economic equal?

There is no denying that the fishing industry has emotive power. But it is time to start asking the serious questions about whether Brexit could deliver real control for UK fishermen.

Let’s start with some context. According to the most recent EU level fisheries publication there are 6,552 fishing vessels in the UK (90% of fishing businesses only have one vessel), and the industry employs around 12,000 fishermen. Between them the vessels landed 758.8 thousand tonnes, worth just over a billion pounds in 2014. On average UK vessels land around 400,000 tonnes of fish each year in the UK, and between 200,000 and 300,000 tonnes abroad. The capture fishing industry represents less than 0.1% of UK GDP.

This interest in an industry that is worth less than a tenth of a percent of GDP, and only marginal in employment terms, is a result of the famous flotilla on the Thames and the use of the fishing industry to claim that the EU has ‘failed UK fishermen’. The talk of sovereignty and controlling our waters is very emotive stuff, and taps into the maritime heritage and island mentality of ‘bloody foreigners stealing our fish’. On top of that, the fishing industry has had its expectations raised, probably unfairly, by promises of ‘total control’, exclusion of other fishing fleets, and increases in fishing quota available to them. But can Brexit deliver? Is the fate of the UK fishing industry going to be the litmus test for a successful Brexit?

Before we think about Brexit, it’s important to understand six key points about the fishing industry:

1. Fish stocks and profits have been improving under the Common Fisheries Policy since 2003. The recent communication from the European Commission on state of play of the Common Fisheries Policy showed that 44 stocks (61% of the total North East Atlantic catches of interest to the UK fleet) are at a level which can produce the maximum sustainable yield (MSY), the stated policy objective for all EU stocks by 2020. In the same sea area the average biomass of fish was 35% higher in 2015 than in 2003. Fishing capacity, which has been too high for decades in the EU overall, is also dropping (and therefore more in line with what is available to catch without risking stock collapse). In terms of profit, the industry across the EU recorded an unprecedented net profit of €770 million in 2014 – a 50% increase versus 2013 – contributed €3.7 billion to the EU economy.
2. The UK large scale fleet is the most profitable of the lot, with the gross profit margin increasing from 15% in 2008 to 25% in 2014 – amounting to over 280 million euros. It is hardly difficult times for those who sent their multi-million pound vessels down from Scotland to the Thames (burning hundreds of litres of red diesel subsidised by the UK taxpayer) to complain about their raw deal. However…
3. The UK industry is split between large and small vessels, who have had very different fates over the last 30 years under UK Government quota policy. The majority of UK vessels are ‘small scale’, defined as under 10m in length, who generally fish inshore waters (within 12 miles from shore). This inshore fleet is three quarters of the workforce, and mainly fish for shellfish bound for the continent (mainly France, Spain and Italy). Tariffs and non-tariff barriers are therefore a major concern given that part of the reason they have been targeting shellfish is that all shellfish (with the exception of langoustines) are outside of the EU quota system.
4. Investment has been increasing in fishing for years. There has been an unprecedented level of investment which has steadily gained momentum over the past two years, according to Fishing News. This confidence and investment started before the referendum on EU membership was on the horizon, which doesn’t align with the theory that the EU is suffocating the fishing industry.
5. Fishing is a globalised industry and seafood is heavily traded. Around half of the UK catch ends up in the EU market, and there are 6,187 British flagged vessels in EU w Meanwhile, there are thought to be around 26 Dutch and 40 Spanish vessels with rights to catch high percentages of the quota for some major fish stocks of interest to UK fishermen. It is these vessels that have often attracted the negative attention of UK fishers.
6. It’s the processing sector, not the catching sector, that generates most of the economic activity in fishing. Processing is the silent core of the industry, and includes the processing of imported fish and farmed salmon. The sector is highly reliant on EU labour, meaning that Brexit poses significant challenges. Environment minister Michael Gove has said that boats from EU countries will still be able to operate in UK waters after Brexit, as the UK does not have enough capacity to catch and process all its fish alone.

With this context in mind, what could Brexit mean for the fishing industry?

The nationalist-utopian idea of exclusive access to British waters and larger quotas could in theory be a massive windfall for some. But the reality of this kind of confrontational approach not only threatens a re-run of the Cod Wars, but would also create barriers to the EU market which would cause huge concern among many in the industry. And then there is the threat of a crash in fish stocks through overfishing – something we know from recent memory would have very negative impacts on the industry and society as a whole.

We simply don’t know how the negotiations will run, what will be traded-off against UK fisheries and how access regimes will be agreed. But we do know that ultimately the only way the seas can be managed fairly is through co-operation between the different nations who fish them.

It’s easy to understand why UK fishermen resent the EU and the Common Fisheries Policy. The quota shares that the UK government agreed to on entering the EU were less favourable compared to the French, for example. The way that the UK government allocated its share of the EU total catch has meant the inshore fleet has had to throw edible fish overboard. UK fishermen want the fish stocks they have exploited for generations to deliver economic benefits to the UK coastal communities which so desperately need a boost. An optimistic view is fair enough, and small-scale fishermen in particular need something positive to focus on, but can and will UK coastal communities benefit?

As things stand, EU owned vessels accessing British waters have to fulfil one of four requirements:

1. land at least half the catch in British ports;
2. hire a crew where at least half are British (coastal) residents;
3. spend at least half of your operating expenditure in the UK, or;
4. demonstrate other benefits to the fishing community (e.g. quota donations).

Post-Brexit this could be reformed in various ways (e.g. tightening criteria to ensure fish is landed and processed in the UK – but this may require additional investment in port infrastructure), or even replaced with a landings tax which could be used to cover management costs, science or enforcement and get a public return to ensure a genuine benefit to UK coastal communities without having to resort to confrontational approaches or massive enforcement and legal bills.

Was Brexit necessary to push for a different allocation of EU quota shares?

Ever since the late 1970s the European Economic Community (EEC) has operated a policy called ‘relative stability’ which fixed shares of catches to reduce fishing pressure. This was agreed by all members, including the UK, and was based on historical catches, losses incurred through the establishment of exclusive economic zones (EEZs), and the needs of coastal communities highly dependent on fisheries.

However, dissatisfaction with these arrangements has grown as climate change and specialisation in fishing activity by different EU countries and fleets has caused significant changes to fishing stocks. There is a clear case to reform the relative stability policy (which took 7 years to negotiate in the first place) with what is called ‘zonal attachment’. Under this new approach, quota shares would be determined by the share of biomass of each stock within each EEZ, rather than the volumes of fish caught by each country over 30 years ago.

It’s worth noting that the UK could have pushed to reform relative stability from within the EU and Common Fisheries Policy (and they might have used their influence within Brussels to more effect) so a car crash Brexit is hardly a prerequisite for improving UK fisheries.

Unilateralism won’t work

The UK would be reckless to unilaterally replace the Common Fisheries Policy with domestic law and dictate terms of access to EU vessels of EU Member States. Instead, agreeing a bilateral agreement with the EU is the best way forward. Research for the European Parliament’s Committee on Fisheries (PECH) suggests a preferential regime with EU Member States which currently fish UK waters would be necessary. If the UK fails to do this and pursues unilateralism, other countries could respond by saying that their access rights ‘trump’ UK domestic law. If this happens, there is a risk of starting the cod wars all over again, albeit this time in reverse, where the UK has to defend its EEZ from others. This is clearly a risk that the UK cannot afford to take, as the sea border for our 200-nautical-mile EEZ would be un-patrollable.

There have been moves towards copying the Common Fisheries Policy into the Great Repeal Bill, but according to legal experts this idea of ‘repatriating the CFP’ is delusional, as key EU legislation is so focussed on the commission, council and EU agencies that it would be easier to start from scratch, writing an entirely new policy as promised in the Queens Speech (in the shape of a Fisheries Bill / Act). Parliamentary approval, a devolution deal and systems and funding for science and enforcement will not be wrapped up immediately, so a transitional deal will be needed. Setting up meetings in Brussels and reaching that agreement now, rather than focussing on the Faroes and Iceland, would therefore seem a more pragmatic approach.

But with fishing not even on the Brexit agenda yet, we can expect more twists and turns over the coming weeks, months and, most likely, years.

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At the end of last year, a news story was published with huge implications for ‘international development’: a drop-off in commodity prices through 2016 dashed hopes that the world’s poorest countries could escape extreme poverty by the end of the decade.

The story raises a critical question directly linked to what Brexit will mean for countries of the global South and the reality of what ‘free trade’ and protectionism mean in the context of economic development – a reality brought into sharper relief in recent weeks by a long-running spat over trade at the G20 and Liam Fox’s focus on signing tariff-free trade agreements around the world.

Why is it that global trade policies continue to ensure that the world’s poorest countries remain dependent on the export of primary commodities, whether food products, metals or minerals? And what, if anything, will a Brexit UK do to address this?

These questions are particularly relevant in light of Nigeria and Tanzania’s confirmation that they will reject the EU’s proposed Economic Partnership Agreements (EPAs) for West and East Africa respectively because they will prevent African industrialisation.

And they must also be placed in the context of official international development policies: the UN Sustainable Development Goals (SDGs) explicitly target “sustainable industrialisation” and the requirement to give “respect for each country’s policy space and leadership to implement policies for poverty eradication”.

Nigeria and Tanzania’s reaction to the EU’s proposed agreements highlights the divide between what Northern-authored trade deals claim to offer and how they can directly inhibit the ability of Southern countries to enact their own industrial development policies.

While the European Commission holds to a neoliberal mantra – redolent of 1980s structural adjustment programs – of removing ‘barriers’, meeting ‘international’ standards and reforming the public and private sectors, a different view holds sway in Tanzania, where there is awareness that a recent ban on the export of mineral sands from gold mining in favour of local processing would not be allowed under EU trade terms.

Tanzania’s foreign affairs permanent secretary Aziz Mlim argues that the EU trade regime: “… will not benefit local industries in east Africa. Instead it will lead to their destruction as developed countries are likely to dominate the market.”

Frank Jacobs, President of Manufacturers Association of Nigeria (MAN), expressed a similar concern, explaining that Nigeria would experience an: “… accelerated shut down of the few surviving industries in the region. This will further de-industrialise the region and would have catastrophic implications on employment generation thereby worsening the poverty situation in the region.”

Most worryingly for the EU – and the UK, which plans to roll over EU agreements – Nigeria’s rejection may trigger similar refusals from other West African states.

For many focused on trade and development post-Brexit, a key ask, now granted, is that the UK carries over existing EU schemes that grant poor countries tariff free market access for exports.

But the UK must go further. Brexit trade policies will do little for longer term economic change in the South unless poor countries can export processed or manufactured goods with similar preferential schemes, or, conversely, use tariffs to shield emerging industries from international competition. On top of this, the Northern-led agenda of using trade deals to privatise public services and grant corporations legal powers to sue states outside national jurisdictions offers little in the fight against poverty.

As such, the option for poor countries to adopt protective measures is critical to fulfilling not only industrial policy SDGs, but also to lessening dependence on commodities – and in so doing, providing an economic platform for diversifying economies and alleviating poverty.

And it is here that the simplistic free trade vs protectionism framing that is shaping Western discourses on trade – especially post-Brexit and the rise of Donald Trump – must be rejected.

This framing, evident in the tussle between the EU and the Trump administration within G20 talks, pits the little-loved rules and institutions of an international liberalising order against a belligerent economic nationalism. However, this obscures the fact that rich countries only pursued free trade after they ascended to the peak of the global economy; they used protectionism to ensure that domestic industries grew ahead of being exposed to competition, before “kicking away the ladder” they used to get to their dominant positions.

Even trade agreements to which Southern countries are not party, such as the proposed Transatlantic Trade and Investment Partnership (TTIP) between the USA and the EU, are crafted in an effort to liberalise and undermine regulations in poor countries that rich country ‘investors’ do not like – such as tightened regulations on fossil fuel extraction.

By using the powerful political lexicon of ‘free trade’ to once again impose equal rules on unequal partners, the UK’s “Empire 2.0” would be alive and kicking.

The UK faces a simple choice. It can continue with “free trade imperialism” policies which are increasingly opposed in the global South, and which the UK, outside of the EU, may lack the influence to force through. Or it can carve a new path as a Northern state that pays more than lip service to commitments contained in the SDGs and other international accords.

Only one path can lead to trade justice for the poorest countries of the world.

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This past few weeks have been full of the politics of hope, a growing reminder that change is possible. It’s a vital reminder because a key source of power for corporate driven neoliberalism over the past four decades has been to insist that it is the only answer.

Trade deals have been one of the most insidious contributors to those blinkers on our view of the world. They are written in secret and then imposed upon us as though they are the rules of the game – simply the way things have to be. But this isn’t true. The choice of how we do trade is highly political and it can be different.

Everything about the Queen’s Speech is up in the air at the moment, and we have no idea what May will omit to give herself the best chance of getting it passed. However, whether in this parliament or the next, the government is going to have to pass a bill on trade to set out its approach when we leave the EU. The UK has not had its own trade policy for decades and so the government is faced with a blank slate. But if we do not seek to fill it with trade policy from a perspective of justice and rights, it will be filled by others.

Trade has a profound effect on almost all aspects of daily life.

Yet at the moment trade rules are undermining the things we value – decent jobs, the planet, ending poverty, building a more equal society.

Instead they act as a tool for powerful corporate interests.

Those of us who believe in a more just and equal world need to start building an alternative vision for trade policy. So what would this look like?

1) Trade deals are not necessarily the right thing to do

For a start, we need to acknowledge that while there may always be benefits from trade, embarking on a trade deal is not always the right thing to do, for two reasons.

Firstly, when there are serious concerns about human rights abuses, environmental destruction, arms sales or similar, then we should not enter into a trade agreement.

Secondly, between rich and poor countries we should offer trading access to UK markets without asking anything in return. Giving this type of access is often called ‘duty-free, quota-free’ and at the moment, as part of the EU, the UK provides this to least developed countries. It is essential that, as a minimum, this is improved. The UK should extend the number of countries to which this offered and simplify the rules.

2) Trade is not more important than people and planet

Trade has always been part of society and always will be. But it is only one aspect, not the most important thing in our lives. Trade needs to be put back into its place as one component of the whole and we need to set clear priorities.

It needs to be explicitly written into trade agreements that the rules must comply with human rights law, labour standards, environmental standards and climate commitments, and that if there is a conflict, the trade rules are subordinate. This ‘override’ or ‘supremacy’ clause needs to apply to the entire text of the trade deal.

Nowadays a whole range of issues that are only peripherally related to trade being added into trade deals leading to massive controversy. Secretive, remote trade negotiations have rewritten other aspects of law and policymaking without any democratic accountability – and also sometimes simply without expertise in these other areas.

We need to focus trade deals back in on the core issues of trade and tariffs – shedding all the accreted fat and getting back to the original purpose of trade agreements. Issues such as patents, government buying standards, domestic regulation, migration, food security, investment or data privacy do not belong in trade agreements. Any international rules on these sorts of issues should be debated in existing specialist intergovernmental organisations.

It is also essential to include watertight exclusion or shield clauses for public services. Existing exemptions for security and military concerns can be used as a model to provide a strong, meaningful exemption that goes beyond rhetoric.

3)Trade should work in the public interest

To work in the public interest, trade rules need to help counteract inequality and power imbalances. They certainly should not make them worse.

Yet at the moment trade deals include the notorious ‘corporate courts’ (ISDS or ICS). These give special rights to transnational corporations who are already among the most powerful organisations in the world, and do not even impose any obligations on them in return. They allow corporations to sue governments over anything they can claim could affect their profits – environmental protection, financial regulation, renationalising public services, anti-smoking policies – you name it.

Corporate courts should be excluded from trade deals. Instead, trade agreements should include mechanisms for individuals, groups and communities to bring grievances over the harm caused by trade agreements. If anyone needs international rules to protect their rights it’s the victims of corporate exploitation, not the perpetrators.

Trade policy also needs to be seen as part of a package, alongside industrial policy, agricultural policy, development policy, regional policy, welfare policy and others. These need to be in balance, complementing each other in ensuring that as many people as possible can benefit from trade deals and those who lose out are provided for.

4) Trade should do good

At the moment, trade rules tend to not only be blind to the environmental and social costs of things being traded, but actually prohibit favouring more socially and environmentally responsible products and practices. Instead, trade agreements should ensure tariffs and trade preferences take social and environmental considerations into account, so that goods with less environmental impact and higher social welfare receive greater preference.

For instance, the rules could allow for a sliding scale of tariffs based upon a product’s climate impact, including assessing negative effects from production and transport, and positive ones from use of renewable technologies.

Trade agreements should explicitly specify that nothing in the rules can be interpreted to justify lowering standards and the agreements should only be completed if all the countries involved are able to reach the highest common denominator.

5) Trade should be democratic

Given the broad scope of trade policy, people have a right to know about, and be part of shaping it. This should not be a ‘concession’ – trade policy would actually be improved by robust debate and contributions from a broad range of knowledge and expertise.

Trade policy also needs to be accountable to parliamentary sovereignty. However, as things stand, our elected representatives in the UK have virtually no say over trade deals. MPs can’t set a mandate to guide government negotiations, they have no right to see details of the negotiations, they can’t amend deals and they can’t stop them.

In other words, we have no real democratic control over these vitally important deals. This needs to change.

What kind of trade we want for the world we want to build is a vitally important conversation. Global Justice Now’s ideas are explored more in this discussion paper. We are interested to hear what others think.

The post 5 principles to guide Britain’s new trade policy appeared first on New thinking for the British economy.

Politics is always entwined with economics and often produce strange and unforeseen results. With the UK withdrawal of membership from the European Union and Donald Trump’s isolationist US policies, it seems they have both relinquished their role as leaders of the globalisation process. On the other hand, in this year’s World Economic Forum in Davos, Chinese President Xi Jinping strongly defended free trade and urged the world to say “no to protectionism” in his speech addressing the world’s elite.

That message was repeated last Sunday in Beijing when Xi addressed a host of heads of states and high profile delegates at the high-profile Belt and Road Forum for International Cooperation. China, which will celebrate the Communist Party’s 100^th year anniversary in 2020, is fast earning the recognition of being the new champion of globalisation.

When China joined the World Trade Organisation in December 1991, there were many predictions that it would be the number one economy in the world in the 21^st Century. What it achieved during this early stage as the second biggest economy is staggering. The weekend summit was the global unveiling of Xi Jinping’s multibillion dollar Belt and Road Initiative.

The hugely ambitious foreign policy initiative and infrastructure enterprise will connect Asia to Europe and beyond. It consists of two main components: first is the land-based “Silk Road Economic Belt” (SREB) and, second, the oceangoing “Maritime Silk Road” (MSR). The ‘belt’ includes countries situated on the original Silk Road through Central Asia, West Asia, the Middle East, and Europe. The Maritime Silk Road, as a complementary initiative,  is aimed at investing and fostering collaboration in Southeast Asia, Oceania, and North Africa, through projects around the South China Sea, the South Pacific Ocean, and the wider Indian Ocean area.

UK Chancellor Philip Hammond represented the UK at the summit and the UK have already  upped the ante to cement the “golden age” of UK-China relations by launching the first direct cargo train laden with British goods bound for China last April. The train, which regally departed from just outside of London, traveled over 12,000 kilometers and nine countries to Yiwu with 32 matching royal blue China Railway Express shipping containers.

A New Global Order?

First proposed in 2013 by Xi, the Belt and Road Initiative (BRI) is an estimated $3 trillion infrastructure project that spans more than 65 countries covering 70% of the world’s population. It will build massive roads, bridges, gas pipelines, ports, railways, and power plants, as well as involve trade agreements and investments. There is no doubt that it is changing the contours of international development cooperation and affecting the geopolitics of energy as well.

The BRI is expected to create a vast Eurasian area of economic union and boost trade between China and participating countries. Press releases from Beijing announced that this mega-project is about connectivity and integrated open markets. There are criticisms from developing countries in Asia and Africa that it will increase indebtedness of poor countries as the financial agreements are mostly in the form of debt rather than development aid. The most vocal criticism came from India, which boycotted the forum due to the China-Pakistan corridor of the project, which will run through disputed territory in Kashmir.

In early 2016, Chinese financial institutions and companies have already announced over USD 1.1 trillion of funding for the BRI. This is in addition to the authorised capital of USD 100 billion for the Asian Infrastructure Investment Bank (AIIB) and another USD 100 billion authorised capital for the BRICS New Development Bank. Today, the EU is China’s biggest trading partner, while China is the EU’s second largest trading partner after the United States. Trade in goods between the EU and China is worth well over €1.5 billion a day, with EU exports amounting to €170 billion and imports to €350 billion in 2015.

China also joined the European Bank for Reconstruction and Development (EBRD) in January 2016. Its membership facilitates the EBRD’s investments to the BRI in member countries, many of which will be on the construction of network of transport links between Asia and Europe that will also cross many of the countries where the EBRD invests in.

China and UK’s Golden Age of Partnership: How to Ensure that People Matter?

Chancellor Hammond said that the UK will be a natural partner for China’s new Silk Road programme and Theresa May’s government is obviously keen to sign a free trade deal with China after Brexit. Since the influx of Chinese capital to Europe, the sectors that most attracted Chinese investors have been energy, automotive, food and real estate. The UK is the biggest recipient of overseas direct investment in Europe. Chinese investors have poured $38bn (£29bn) into a broad range of assets ranging from prime London real estate to banks, energy projects and football clubs since 2005.

UK real estate is particularly attractive as Chinese investors see it as being stable and the legal system makes it accessible to them. Chinese investors have put more than $12 billion into UK property – nearly a third of China’s overall investment in Britain. The purchase of London’s “Cheesegrater” skyscraper by China’s CC Land for £1.15bn last March was one of the prominent deals in 2017.

In the same year Chinese companies invested £4 billion in London properties, which is 30 percent higher than the 2015 record. Although the U.K.’s vote to leave the European Union lowered prices for Chinese buyers by the depression of the pound against the yuan, any longer-term profits depends partly on whether Brexit will drive down rents and property values.

Many studies are asking whether China is exporting its investment model to economic partners and if that will be to the advantage of the economy of trade and investment partners. The bigger question is whether the future UK government after the June election and after Brexit is ensuring that new trade and investment treaties will be oriented towards equitable, democratic, inclusive and sustainable development for UK citizens.

Is the new economic relation with superpower China leading to a UK that is more responsible for human rights and environmental equilibrium globally? Are human rights principles part of the future character of the UK foreign and trade policies? In the age of Brexit, our foreign policy is as important as domestic policies.

This article was originally published at Global Justice Now. 

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The new DEFRA Secretary Michael Gove MP will be staring at a blank page when it comes to replacing the old European Common Agricultural Policy (CAP) with a new system of support for UK farmers. The Treasury will be gazing hungrily at the fat budget (over £3 billion) that farming currently accounts for. Which way will Gove swing?

As one of the most complex, costly, and widely disliked common EU policies, Brexit presents a once in a lifetime opportunity to end some of the absurdities and harm of the CAP – a system which has failed to support farms effectively, failed to stem the huge loss of farm diversity and failed to protect wildlife and services such as flood mitigation.

But what will Gove replace it with? I explored some of the key issues in an earlier blog. Maintaining and improving standards in areas such as environment and animal welfare will matter massively. The National Farmers Union (NFU) “believes it would be wrong for imported food to be produced to different standards than those adhered to by British.”  They have also recently surveyed their members and it appears their confidence has taken a severe knock.

Improving our food security so our farmers can feed us healthily, affordably and sustainably really matters. The lamentable level of domestic fruit production – just 1 in 10 pieces of fruit eaten here is grown here – is just one example. But this should change.

Governments across the globe have adopted widely different systems to subsidise and promote farmers, from New Zealand’s complete removal of all financial support for farming in 1984, to the Swiss model that is one of the costliest in the world. Gove should understand that  neither extreme looks suitable for a future UK system. We need a clever, affordable, workable system that is suitable for a wide range of farms and landscapes, but which also looks after the health of the four nations. Each nation needs to design its own scheme, suitable for its industry, environment and population.

Sustain – an alliance of 94 organisations with a combined public membership of several million – believes that a focus on high volume, low standard production is not the answer. Leaving farmers with no public support (which currently represents a significant part of many farmers’ income) could create a highly polarised system with a small number of huge, intensive specialised farms and some high nature farmland protected by charitable grants. One can imagine the death of small and family farms.

Farming is undoubtedly a business, but it is also so much more. Sustain’s new proposals, consulted on with our alliance and others, recognise that farming can also provide much wider public outcomes and benefits including thriving rural communities, valued farm workers, safe food, good nutrition, a protected and nurtured environment and high animal welfare. Any new deal should help farms achieve this.

The Sustain alliance, which contains a broad range of organisations concerned with food and farming, has proposed a practical way forward and a basis for debate once the election dust has settled. The Government will need to find common ground between the industry, the Treasury, our future relationship with the EU, and those groups championing the rural economy, conservation, public health and development.

The alliance recommend that the next Government should retain taxpayer support for farmers after Brexit, but replace the old two pillar EU system with a new four-part deal for farming based on:

1. Payments for public goods – shifting payments from large landowners and biofuel production to supporting resilient farming, nature and animals, creating more rural jobs and growing our own healthy 5-a-day fruit and vegetables, in a new Land Management Scheme;
2. Support for demonstrably sustainable business needs such as marketing hubs or micro-processing units, farmer innovation, facilitation funds for setting up cooperatives via capital grants, loans, and business advice;
3. A new publicly funded programme of low cost advice and support for a farmer-to-farmer advisory network; and
4. Wider policy measures to ensure farmers can thrive such as extending the Grocery Code Adjudicator’s powers to ensure fair trading practices from supermarkets and their suppliers, keeping high standards including worker standards and organic legal rules, and requiring an increase in the purchase of local and sustainable food for public-sector organisations such as schools and hospitals.

A key but potentially contentious proposal is that payments to farmers and land managers should be front loaded, with Government tapering or capping payments to use taxpayers’ support wisely and ensure the diverse mix of farm businesses can thrive, not just the largest.

The alliance also suggests we need special support for fruit and vegetable production as there is a real chance for import substitution and getting more of our ‘five-a-day’ grown sustainably in the UK. Supporting new entrants into farming and encouraging agroforestry – a great carbon fix and wildlife haven – should also get special attention in any new allocation of funds.

Underpinning this policy structure should be a core set of principles within a clear strategy, which is something that we are severely lacking right now. Key to this will be effective targeting of financial and other support and basing allocation on the principle of public benefits (widely defined) for public investment. The Sustain alliance emphasises that all policy must be underpinned by effective regulatory and enforcement systems based on the precautionary principle in order to protect people, the rural economy, environment and livestock.

The final principles refer to trade deals, the responsibility of Gove’s colleague Liam Fox MP, which must not undermine the delivery of this vision in each of the UK’s devolved administrations and should enable other countries to deliver their own food sovereignty.

Future farm policy is going to be a long and detailed discussion. Sustain’s proposed four part deal is a good starting point, and many more ideas will no doubt be put forward. Public involvement in this debate is notoriously difficult but essential – not only as citizens affected by the farmed environment, but also as consumers eating the food and taxpayers who are providing the financial support. Getting the policies right matters not only for the farming sector, but for health and wellbeing across the UK.

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Sainsbury’s just gave African fair trade farmers a real kick in the teeth. The supermarket has devised its own ‘fairly traded’ accreditation system, snubbing the well established independent Fairtrade Foundation scheme. But I’m not buying it (although I did buy their fair trade tea).

As the 200,000 African tea farmers and workers put in their letter rejecting the new Sainsbury’s scheme, “Our destiny must be kept in our hands”. Top of the list of concerns was the fact that farmers would lose control of the money they had earned to spend on community and local projects. Instead, they would have to apply to a board in London to access the money they had rightfully earned, with no guarantee they would receive it. It all sounds rather colonial.

Underlying this is the desire of UK retailers to retain control over the money that is made from food production. This is a great shame, as the whole point of Fairtrade was to make sure a reasonable amount of final spending on food reaches the farmers and workers overseas.

A similar motivation lies behind the rapid rise of the ‘gig’ economy in the food retail and service sectors. By placing all the precarity and risk associated with the ‘just in time’ system onto the worker, supermarkets can keep as much of the profit as possible. But there is another way.

Genuinely affordable, kind and healthy food initiatives – local box schemes, farmers’ markets, internet retail, coops, community cafés and Community Supported Agriculture – are on the rise. Loyalty to supermarkets, on the other hand, is not.  These initiatives are a crucial lifeline for farmers as they provide an opportunity to sell directly to customers instead of a few, rapacious supermarket buyers.

A new network called the Better Food Traders (BFT) network was formed in 2016 to support genuinely sustainable alternatives, challenge the dominance of the supermarkets and help farmers get a fairer route to market. Better Food Traders aims to be “changing the way food works so it’s fair, sustainable and better for all our futures”, and it has ambitions to grow.

The concept is radical and, by design, not uniform or easily branded. It currently has 12 food traders on its books, ranging from community supported agriculture schemes, fruit and veg pick up schemes, an organic Farmers’ Market and urban patchwork farms.  Before you cry “elitist”, many of these initiatives take Healthy Start Vouchers, and paying suppliers fairly and workers a living wage are core principles.  And before you say “too small”, remember that the ethical food entrepreneur behind the new network runs an award-winning values-led social enterprise called Growing Communities that has more than £1 million of turnover in fresh, healthy and sustainable food business.

Supporting BFT is one logical way to build a new vision for a diverse, fairer food system. It allows customers to reward good producers by buying their food and developing a much closer relationship with them. Shorter supply chains mean better communication and less chance of confusion or even contamination and loss of food quality.

In a way it is the opposite of the gig economy, which has been described as “a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs”. For some workers, the precarity of the gig economy is not an issue. Some people like the flexibility and degree of control over their working hours. Technological advances have provided the digital tools that enable the industry to shift output at a moment’s notice. But it can clearly mean worker abuse, bogus self-employment, fewer rights in areas such as sick pay, holiday pay, pension contributions and maternity/paternity pay, and widespread exploitation of the welfare state. And if work does not pay, poverty ensues. In 2016, 7.4 million people, including 2.6 million children, were living in poverty despite living in working households.

Things like decent pay, sick pay, protection from unfair dismissal, holidays and parental leave are not only hard won rights that have been struggled for over the past 100 years. For many, these rights mean the difference between decent work and a constant battle to feed your family, keep a roof over your head and maintain mental and physical health. If the worst parts of the ‘gig’ economy are allowed to succeed, other providers will be unable to compete and may ultimately disappear.

For the African farmers, losing control over their finances can have a similar impact on their ability to live decent lives and support local schools and other projects. Worse, the impact of unfair trading on African farmer incomes lacks the kind of visibility and voice that leads to change. This is why independent schemes such as the Fairtrade Mark and Better Food Traders are so important in making the issues and solutions visible and valued.

We need something better which is healthier and fairer, supports decent livelihoods and protects the valuable farmed environment.

These UK food schemes may seem a long way from African tea farmers, although most do incorporate Fairtrade items in their product range in solidarity. But this is about taking back some control over our food and making sure that the money we spend enables people to live a decent life. Strengthening the Groceries Code Adjudicator to stop unfair risks and costs being passed down to suppliers – at home and overseas – and cutting excessive high pay in the food sector would also help.

At the moment the schemes may be small and out of reach for some. But like Fairtrade they need customer support to succeed. Likewise, trade unions need support in their fight to stop the gig economy eroding hard won rights.  Joining their demands for strong and fair regulation of the ‘gig’ economy is vital. Anna Cura of Food Ethics Council has written recently on the importance of being citizens rather than consumers going “beyond engagement to involve people, and recognising the multiple roles citizens can have in the food system.”

Voting is infrequent, and referendums even more so. We therefore need to vote with every pound we spend. If that means shopping around and spending a bit more time thinking about the food we eat, then in the long run it will be worth it.

The post It’s time to take back control of our food appeared first on New thinking for the British economy.

The economist Steve Keen was one of the few to predict the 2007/8 collapse. We interviewed him about how to avoid the next one.

The post Podcast: Steve Keen’s manifesto appeared first on New thinking for the British economy.

When it comes to Brexit, Labour is caught between a rock and a hard place. With both the party and its electoral base divided, and passions running high on both sides, it simply can’t match the clarity of Theresa May’s pitch for a mandate to push through a hard Brexit. So it alternates between trying to triangulate this impossible position, and trying to refocus debate onto the domestic agenda. And whatever it does, May and the Tory press accuse it of being stuffed with ‘saboteurs’ out to ‘wreck Brexit’, and of wanting to let in too many foreigners.

But this reflects something much deeper than a split in the Labour party. It reflects a more general failure on the left to work out where we stand in relation to the backlash against globalisation. On what is fast becoming one of the biggest political issues of our time, we are both deeply divided and desperately in need of new ideas. If open versus closed has joined left versus right as one of the major axes of our politics, there is no agreement about where the UK left should sit on this spectrum – and no very clear sense of what either the ‘left-open’ or the ‘left-closed’ quadrants of this new political landscape actually look like.

Of course, the right is divided too – but since the Brexit vote they have shown a remarkable ability to paper over these divisions, when many expected the Tory party to implode. More to the point, at least it’s reasonably clear what the two sides stand for – put crudely, this is about nationalism versus neoliberalism. And what we’re actually about to get with May’s hard Brexit is a chilling combination of both: closing our borders to people, but throwing them wide open to global capital.

If open versus closed has joined left versus right as one of the major axes of our politics, there is no agreement about where the UK left should sit on this spectrum.

By contrast, the left debate feels much more fragmented, and too often gets caught between a sterile status-quo liberalism and a toxic anti-immigrant politics. On the one side, we have liberal internationalists committed to maintaining free movement of people but with no serious critique of free movement of capital. Indeed, it’s often treated as part of a homogenous package of liberal values to be defended from the rise of nationalist protectionism: if you’re anti-Trump, you must be pro-free trade. On the other side, we have ‘progressive protectionists’ and Blue Labour communitarians who, in different ways, link their critiques of globalisation to an anti-immigrant politics that many find deeply excluding and dangerous.

It’s difficult to have any kind of conversation that starts from these positions and doesn’t end with people yelling ‘racist!’ and ‘neoliberal!’ at each other. Yet they both misjudge the moment we’re living through. The first fails to take seriously the profound failure of neoliberal economic orthodoxy and its role in the disaffection and dispossession that has helped to drive the Trump and Brexit votes. The second fails to take seriously the clear and present dangers of the racist scapegoating that has accompanied the rise of the far right, and the historic importance of actively resisting it. A left political project capable of rising to the challenges we face must respond to both of these things. But at the moment, the debate is so toxic that we can’t even begin to have the conversations necessary to constructing such a project.

There could hardly be a better illustration of this than the recent ugly spat between academics Wolfgang Streeck and Adam Tooze on the letters page of The London Review of Books. Streeck, a German sociologist, contends that “a little less globalisation is quite alright if it gets us a little more democracy”, while Tooze argues that for the German left to take a “protectionist, anti-EU line… would be hugely counterproductive.” It’s remarkable how rapidly this descends into petty name-calling, with Streeck dismissing Tooze’s arguments as the “faux cosmopolitanism” of a “soul-searching urban-academic middle class”, and Tooze accusing Streeck of behaviour “characteristic of anti-Semites and other conspiracy theorists”.

Needless to say, this kind of bombastic clash of white male egos doesn’t really move us forward. If we are serious about forging a left response to the rise of the far right, we need to get beyond such trench warfare and learn to exchange ideas in good faith and a spirit of humility. And if we’re serious about building long-term progressive alliances, we need to find some common ground on these issues – or they could end up tearing such alliances apart.

If we’re going to do this, perhaps we need to abandon the open/closed dichotomy altogether, and instead ask the more practical question: towards what do we actually want to be open or closed? After all, when you dig beneath the nationalist rhetoric, it’s not as though the new right fits neatly into this binary. May’s government seems perfectly comfortable combining an aggressive ‘closed to people’ agenda with an equally aggressive ‘open to capital’ agenda. Her January speech setting out her Brexit negotiating priorities proclaimed that Britain was to be “one of the firmest advocates for free trade anywhere in the world.” She also notoriously threatened that if a deal couldn’t be reached, Britain would be free to transform itself into the tax haven of Europe.

And though Trump’s trade policy is more protectionist, it is equally unlikely to seriously challenge the interests of footloose global capital. Indeed, as Nick Dearden argues in his important piece for openDemocracy, a new US-UK trade deal could accelerate the neoliberal race to the bottom on social and environmental protections. The much-trumpeted control of our laws supposedly won back from Brussels is likely to be swiftly negotiated away again, through clauses giving transnational corporations a veto over new regulation that could affect their profits.

So what would it look like to start building a progressive alternative that turned this politics on its head – open to people but closed to big money? That is the question we urgently need to be asking ourselves. I don’t pretend to have all the answers, but as a start, here are three pillars that such a politics could be built on.

1. Forging a democratic trade policy – and a movement to fight for it

Trade policy is perhaps the area where both new economic thinking and a rebuilding of the left’s capacity to mobilise is most urgently needed. From its place at the heart of the anti-globalisation movements of the ‘90s, trade has dropped off the radar of many progressive forces – the heroic efforts of anti-TTIP campaigners notwithstanding. With a wave of new trade deals on the horizon that could shape our economy for decades to come, we urgently need to rebuild a mass movement on trade that knows what it wants.

If the details of this still need to be worked out, the TTIP movement gives us a clue as to what the guiding principle should be: protecting democracy, local, national and international. This goes for both the process and the substance of trade deals. We must resist deals negotiated behind closed doors which create new ways for corporate vested interests to subvert democratic processes – whether through ‘secret courts’ or veto powers over new laws – and which rig trade rules in favour of the wealthy. Instead, we should demand that trade negotiations be transparent and accountable to citizens.

We must resist deals negotiated behind closed doors, which create new ways for corporate vested interests to subvert democratic processes.

Likewise, free-trade dogma should no longer be able to override the efforts of local policymakers to support and shape their local economies in pursuit of social and environmental objectives. Particularly in a context where city and regional authorities are one of the key remaining sites of progressive power, they need to be able to use the tools at their disposal to build democratic ownership and create local jobs. For instance, Ontario’s Green Energy Act made renewable subsidies conditional on companies meeting ‘buy-local’ requirements, to ensure that public money was used to support local jobs. Having been held up as an example by energy democracy activists the world over, this was ruled unlawful by the WTO. A similar fate has befallen buy-local policies included in India’s solar energy programme.

This is especially crucial to building a progressive response to the politics of Trump and Brexit. Neoliberal free-trade orthodoxy is premised on the idea that if all economic activity is sent to wherever it can be done most ‘efficiently’, everyone will be materially better off. The loss of local jobs and industries in that process is simply collateral damage. It doesn’t matter if we destroy a job in a steel mill in Sheffield, because we’ll create a better one in a bank in London. In the last year, this inhuman economic calculus has crashed head-first into the realities of life in deindustrialised communities, and the ballooning inequalities it has helped to create.

We cannot afford to allow the right to pose as the defenders of these left-behind communities whilst doing nothing to address these problems.

Of course, from a human perspective, this is nonsense. The fact that the steel mill was the backbone of the local community, a source of identity, and the heart of the local economy are worth something. The fact that most local people are never going to get a job in a bank in London, and that from their point of view the steel mill has been replaced by precisely nothing – or, at best, by an insecure job in a call centre – matters irrespective of whether the bank adds more to GDP. We cannot afford to allow the right to pose as the defenders of these left-behind communities whilst doing nothing to address these problems. And by insisting on our right to democratically rebuild and shape our local economies, we can do justice to the importance of community and identity without being drawn into anti-immigrant politics.

2. Taming global finance – at home and abroad

The impetus for financial reform, never very strong to begin with, now seems to have been buried entirely beneath the rubble of the last year’s political earthquakes. Trump may have cloaked himself in the rhetoric of banker bashing, but his actions in office speak otherwise. As one anonymous Goldman Sachs executive reportedly said, “If I’d known how good Trump was going to be for Wall Street, I’d have campaigned for him.”

This leaves the space wide open for a progressive agenda to truly tame finance. With private debt rising and post-crisis reforms unravelling, the next financial crisis could be just around the corner – and we need to be ready with a response. And, as Nicholas Shaxson has persuasively argued, there’s no point us being morally outraged by the tax avoidance of the global elite unless we’re seriously willing to take on the financial system that enables and encourages it.

Trump leaves the space wide open for a progressive agenda to truly tame finance.

The question is whether and how new forums for the global governance of finance can be built. If the UK is no longer going to be bound by EU law, we need to come up with new ways to control global mega-banks and their weapons of financial mass destruction. Measures like financial transaction taxes and higher capital buffers all work best at an international level. And perhaps we need to resurrect the idea of capital controls – to stem the tidal waves of hot money fuelling bubbles and crises that wreck lives, from Iceland, Ireland and Greece to Thailand, Mexico and Argentina. Paradoxically, this is one area where ‘less globalisation’ actually requires more global co-operation. Prospects for this may look gloomy in the current climate – but we must do all we can to avoid it becoming unthinkable.

Having said this, this agenda doesn’t begin and end with regulation. The history of EU financial reform shows us that, captured and compromised as reform began, it is now being methodically unravelled by bank lobbyists while the political circus moves on. If we leave our banking behemoths intact and rely on international law to constrain them, we’ll always be facing an uphill struggle. We need to change the structure of the system itself – to break up the power of mega banks and build democratic alternatives in their place.

Perhaps surprisingly, I actually think this is a counsel of optimism – because it means that the project of fixing finance can begin at home, and indeed can be started even without progressive governments in power nationally. A good example is the work of the Democracy Collaborative and the Public Banking Institute in the US to build a new generation of public banks at the state level. In the UK, a good place to start would be with RBS – by calling loudly for the bank we already own to be turned into a network of local public banks, mandated to lend to their local communities rather than to speculate on international markets and bankrupt small businesses.

3. Giving no quarter to anti-immigrant politics

We can’t win by aping the clothing of the right and promising to curtail immigration. Even if we could, it would be morally unjustifiable to do so in a climate of increasingly open and virulent racism and xenophobia. The scapegoating of outsiders to distract from an unjust economic system is as old as the hills, and the left should have no truck with it. We must not play into the narrative that immigration is somehow to blame for the stagnation of wages and the loss of jobs in ‘left behind’ communities, when all the evidence suggests this is not the case.

The Tories’ attempt to deflect blame for the consequences of austerity onto immigrants is open and blatant. In her January Brexit speech, Theresa May claimed that the “sheer volume” of immigration in recent years “has put pressure on public services, like schools, stretched our infrastructure, especially housing, and put a downward pressure on wages for working class people”.

The scapegoating of outsiders to distract from an unjust economic system is as old as the hills, and the left should have no truck with it.

But it’s not immigration that is driving down wages for working people in the UK. It is the smashing of trade unions, the power of footloose capital and the ease with which it can offshore jobs to cheaper jurisdictions. Research by the LSE has found that “the big falls in wages after 2008 are due to the global financial crisis and a weak economic recovery, not to immigration.” And the housing crisis has much more to do with a bloated, bubble-blowing financial system than with too many people coming into the country.

These are dangerous times, and unless we can offer a vision for a better future that doesn’t rely on promising to keep out foreigners, we are heading for truly terrifying waters. This doesn’t only mean defending free movement of people. It means keeping the dangers of xenophobia and racism at the forefront of our minds in all of our thinking. It would be a historic mistake to try and offer an anti-elitist economic agenda while triangulating or fudging on immigration.

Recently a fellow finance activist showed me a propaganda poster from Nazi Germany bearing the slogan “Smash the enemy, international high finance”. It was a forcible reminder that hating economic elites and hating a racialised ‘other’ are very far from being mutually exclusive. If we want to develop a radical democratic left platform – and I think we must – we would do well to remember that any narrative about democracy involves an implicit ‘us’, and any narrative about elites involves an implicit ‘them’. It’s incumbent on us to be very careful indeed about who is included in that.

Of course, none of this solves the immediate problem of where the left should stand on Brexit, or what its rhetorical stance should be in a moment of increasingly febrile nationalism. These questions are fraught with difficulties of their own. But if we try to resolve them without first having serious conversations about the platform we want to stand on, we shouldn’t be surprised if we tie ourselves in knots.

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Donald Trump’s latest Executive Order, issued last week, could foreshadow a dangerous trade war with China and the European Union. It suggests that the nationalists in his administration have got the upper hand for now, and their ideology – for all of their bashing big trade deals like NAFTA (the North American Free Trade Agreement) – is no more conducive to a fairer or more peaceful world than the neoliberals they replace. Far from it.

Trade is an issue on which Trump’s cabinet is particularly divided. Unfortunately, neither side in this battle is worth rooting for.

The neoliberals vs the nationalists

Gary Cohen, Wikimedia

In one corner is Trump’s economic advisor Gary Cohn, an investment banker and former president of Goldman Sachs. Cohn got a $284million severance package to join Trump, and has a reputation for aggressive, risky behaviour. Also in Cohn’s corner is Treasury Secretary Steven Mnuchin – Goldman partner and hedge fund founder.

Both are keen to remove Obama’s post-crash financial regulation and slash corporate taxes, policies which have helped their former corporation’s share price rally to the point that the Financial Times describes as “embarrassing.” Cohn and Mnuchin are the neoliberals we’ve got used to – they want free trade, free markets and an easy life for their corporate friends.

How do you lose a popularity war with these guys? Well, in the other corner stands Commerce Secretary Wilbur Ross. Ross is a billionaire investor known as the ‘bankruptcy king’, because of his aggressive asset-stripping strategy – buying up failing companies and selling them on without regard for jobs, pensions or safety standards. Ross was fined in 2016 for breaking financial regulations and his company sued for negligence when, in 2006, 12 miners died in an explosion. He made millions during the financial crisis, both from mortgage foreclosures and bank bailouts. In Ross’s corner is Peter Navarro, at the National Trade Council, author of ‘The Coming China Wars’ and ‘Death by China’.

Wilber Ross, Wikimedia

These charmers are the economic nationalists, and they want to rip up international trade rules which they see as preventing the US from negotiating more exploitative trade deals. They hate NAFTA not because two million Mexican farmers losing their livelihoods was too much pain, but because it wasn’t enough. Their policies border on the fascist, protecting US industry, raising tariffs, then throwing their subsidised goods into foreign economies to export their economic problems somewhere else. It’s the sort of stuff that, in the 1930s, led to real war.

These economic nationalists have an obsession with the US trade deficit which ‘proves’, in their minds, that other countries must be cheating. So rip up the rules, and let the bully rule supreme. In their sights are China and the European Union – the US’s two biggest competitors who need to be taken down a peg or two. If this faction hold sway, expect retaliatory trade measures to follow Trump’s executive order.

How we respond  

The contradictions in Trump’s cabinet are also at the heart of Brexit Britain. On the one hand, Theresa May’s government is filled with free traders. Liam Fox and Boris Johnson are like men who have recently awoken to find the last 150 years were a bad dream, and they’re running the empire at the height of its power. They are egged on by think tanks who believe, for example, we don’t need farmers any more – Africa can grow our food for us and grow it much cheaper.

On the other hand, Brexit largely appears to be a vote for protectionism. The Sun can’t contain its excitement at slapping punitive tariffs on the EU, while many people from communities that have suffered the full brunt of neoliberalism hardly voted for a more competitive environment.

Underlying these different perspectives are deep ideological differences about how the world works. The neoliberals believe that in international trade, everyone’s a winner. It creates such growth and opportunities, that even someone who loses their job as a result of freer trade will quickly find a new one, and anyway prices in the shops will become cheaper. So what’s not to like?

The nationalists tend to think that trade is a zero sum game – what one side gains, the other loses. This accords far more with the ‘common view’ of the economy as a household, hence the hostility to immigrants who are laying claim to a limited number of jobs. They believe in using forms of protectionist measure like tariffs to get ‘one up’ on their competitors.

Both stories are untrue. More and more people accept that trade has losers as well as winners – and over the last 40 years the losers have essentially been left to fend for themselves, hence the backlash against neoliberalism. At the same time, the economy is definitely not a household. Capitalism is an extremely dynamic system, and trade can create new economic relationships which spur growth, jobs, new industries and more.

These divisions should give the left the perfect opportunity to expose the contradictions in the new establishment’s economic policy. Yet to date, the left has watched this battle unfolding, unable to offer a distinctive alternative which could resonate with a broad mass of people. The neoliberals created this immense crisis which is now unfolding at a terrifying speed. But the nationalists will ensure that that crisis ends in the most brutal way possible.

What does a left trade strategy look like?

For the left, the starting point must be that trade is about power. This should be obvious for a country which made its wealth trading enslaved people, decimating one of the richest economies in the world (India) and forcing opium on China with gunboats.

In the modern world, totally ‘free trade’ without government regulation to control the free movement of capital or to help restructure an economy to meet people’s needs, is likely to create massive inequality, and hand corporations huge power over governments. But on the other hand, protecting industry that is corrupt or desperately inefficient isn’t likely to be beneficial to wider society, and dumping protected goods on other societies simply displaces economic problems, often leading to conflict.

In the 1950s and 60s trade was relatively controlled and regulated, and the benefits were more fairly distributed – at least across western society. In the modern economy, having given away that control, nation states are left powerless before the might of corporations. Social democracy’s capitulation to neoliberal economics is one expression of this and leaves us bereft of a thought-out progressive international trade policy.

So how to move forward? A portion of the left would like to return to the economy of the 1960s, but even if possible, the dislocation this would cause would be catastrophic. And unless everyone moved together, corporations would end up with far greater power over individual nation states, as they are forced to compete for capital. This is what Britain faces post-Brexit.

A better strategy, especially for those who understand the long-term limitations of the nation state and the positive benefits of certain types of economic integration, is surely to push for stronger social and democratic elements to that integration, allowing citizen control of economic direction. For all it’s faults, and they are huge, the EU is the world’s biggest trade bloc to develop social and democratic elements that actually meant many standards increased.

Developing countries could often benefit from doing the same – regional integration with strong social and democratic dimensions to break the stranglehold the global north still enjoys over the global south.

Within such blocs, we can begin to develop alternative rules for the way we trade. In fact, the EU could start taking a lead right now. The first step is to ensure no trade deals trumps human rights, climate commitments or a basic level of food security – that should be enforceable in individual deals. We also need to write in strong commitments to exclude public services, government procurement and a right to regulate that cannot be challenged by international ‘investors’ through the sort of toxic ‘corporate court’ system which currently exist in too many trade deals.

These corporate courts need to be scrapped, and replaced with mechanisms that allow individual citizens whose rights are impinged by foreign corporations to achieve restitution – if necessary at an international level. And, on a more ambitious level, we could give special trade preferences to goods made in exemplary conditions, or – even better – produced in cooperatives or collectives.

We get a glimpse of what an alternative trade system might look like from the ‘pink tide’ governments in Latin America which developed a fledgling alternative trade system known as ALBA, specifically based on principles of solidarity, redistribution of wealth, and cooperation. Venezuela’s oil-for-doctors programme is one small example, and even Livingstone’s London got in on the act with cheaper fuel to power public transport. The potential for an international solidarity economy is huge, and well crafted trade rules can help bring this about. In so doing, we also fight xenophobia and insularity.

There is significant work to do to develop these models, and just as much work in building alliances which can convey this to an increasingly insular public. When people’s experience of globalisation is simply unemployment, commodification and marginalisation, it’s easy to jump on the sort of nationalist agenda represented by Wilbur Ross, especially when it depicts itself as anti-establishment.

Our task is to develop economic models which are open, international, collaborative and local and democratic. This can help us overcome the ‘neoliberal or protectionist’ ‘choice’ on offer, and it allows us to develop a clear and compelling vision for international economics that taps into the concerns of those who voted for Trump or Brexit out of desperation, while preserving the internationalist outlook of those on the left who despise both. Such models are the only hope we have of preventing a further decline into nationalism, based on a fear of the foreigner.

The post Trump, Trade & War: the urgent need for a progressive trade policy appeared first on New thinking for the British economy.

We live in febrile, exciting, awful, too-interesting times. When we look toward the future, very little can be taken for certain. But here is one thing that seems pretty certain as she triggers Article 50: Theresa May’s government is going at the least to try its damnedest to exit the UK from the EU. Whatever the cost. And when a government that commands a Commons majority is determined to try to do something, it rarely fails. Though there are many contingencies and uncertainties, it would be irrational not to plan on the basis that by 2019-20 the UK will most likely have left the EU.

The process of these next three years, as it forces this unprecedented and perilous change through, could be very, very difficult for the government. So, though right now the Conservatives seem to be quite secure, it would be unwise to bet that their electoral future will look nearly so secure, 3 years on.

Let us dare therefore to dream. Imagine in 2020 a ‘Progressive Alliance’ managing to displace the May government, at the ballot box. Imagine perhaps a post-Corbyn Labour minority government, governing with the assistance of confidence and supply arrangements with the SNP, Plaid Cymru, the LibDems and the Greens. Imagine an increased cohort of Greens: some parliamentary party colleagues to join Westminster’s shining star, Caroline Lucas.

The question then arises: what kind of post-EU Britain would – should – those Greens push for? For here is the interesting fact: while it is going to be a Conservative government that negotiates Brexit, most aspects of post-Brexit Britain will still remain to be decided in 2020. Whoever takes power in 2020, it is they, and not the present government, who will have the power to determine largely the actual direction of this country, post-Brexit.

It is therefore not too soon, as Article 50 is invoked, and as we start to think forward to where we would want Brexit to be heading, and as we start to set out an alternative stall to the government’s vis a vis this country’s future, to ask this question. What should a post-Brexit Britain look like? Could there be a ‘Green’ Brexit? Indeed, assuming that the UK does exit the EU, the question is unavoidable.

It is this question that Victor Anderson and I are the first to address, in a report we launched this week, a report we were commissioned to write by Molly Scott Cato MEP.

Here is a very brief outline of our answer:

The world is a very different place both from the introductory economics picture of “free trade” and the ideologically driven vision of a gigantic WTO agreement. In practice, what there is now is a series of trading blocs, such as the EU, NAFTA (North American Free Trade Agreement: USA, Canada, & Mexico), and Mercosur (parts of South America, including Brazil and Argentina), which have agreements within the bloc and then agreements between each bloc and the other blocs. These agreements cover tariffs, product standards (often negatively referred to as “non-tariff barriers”), investment, and related issues such as subsidies (disguised and undisguised) for particular firms or sectors.

Brexit means that the UK would be participating in this system without being a member of any bloc. This would make it vulnerable in negotiations, because on its own the UK would have far less bargaining power than if it negotiated jointly with other countries, for example in the EU or conceivably as a member of NAFTA, because it is a much smaller and therefore less attractive market.

If the UK economy remains as dependent on international trade as it is currently, this would be likely to have severe economic costs. Therefore the only way to make an economic success of Brexit is through reducing dependence on international trade. This is the fundamental conclusion of our report.

This reduction will become possible because the UK will no longer be bound by EU or customs union agreements. It is also what is implied by the politics of a revolt against the economic effects of globalisation. And it is desirable for reasons that have become increasingly clear in recent years.

I have not sought here to lay out the laundry list of policies that Victor and I suggest would work for a post-Brexit Britain along these lines: read the full report for the details. What I’ve sketched here is simply the overarching rationale for a version of Brexit that – rather than removing protective regulations against environmental threats – actually deliberately sets out to establish new high Green standards that our children will thank us for. We need to reclaim the word ‘protectionism’: After all, protecting what we love, protecting the vulnerable, protecting nature, is exactly what most of us are in politics to do.

We believe that the ‘another Brexit is possible’ option set out in our report has the potential to turn Brexit from being a potential disaster for the UK into being the constructive start of a radical new approach to the very real problems of globalisation. An approach which seeks above all, wherever possible, to relocalise.

We believe further that it may prove useful, in the coming months and years, to hold the kind of proposal we’ve made alongside what the British government is doing, as an alternative model, to serve as a basis for critique of government policy – and as a basis for a rallying call for changing that policy.

…And, especially if that policy doesn’t change — as a basis for a rallying call for changing the government, come 2020.

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Is the Commonwealth a part-solution to Britain’s trade woes post-Brexit?

The government’s Article 50 bill cleared the Lords last week on March
13th: Commonwealth Day. Economists’ and MPs’ positions on what the
Commonwealth offers post-Brexit Britain in terms of opportunities for
trade and future prosperity have, meanwhile, become almost as heated
as those on the referendum.

In the red, white and blue corner, Brexiteers have been quick to claim
the eagerness of Australia and New Zealand to sign free trade deals
with the UK, with Boris Johnson heralding the Commonwealth’s
“stunning” global GDP share and GDP growth compared to the EU’s as an
indication of the UK’s bright prospects. Remainers are withering about
what they see as muddle-headed imperial nostalgia. “Get real,”
Conservative-turned-Lib Dem MEP Edward McMillan-Scott tweeted at his
former party colleagues Douglas Carswell and Daniel Hannan as they
welcomed former Australian premier Tony Abbott to an event earlier in
the month – Australia represents 1% of UK external trade and the UK
sells more to Belgium than to India, he told them.

“The Commonwealth is many things, many good things”, says veteran
Commonwealth diplomat, now Antiguan ambassador to the US Sir Ronald
Sanders – but it has not been a trade organization since the end of
Commonwealth Preference in 1973. At a much-vaunted meeting of
Commonwealth Trade Ministers in London on March 9th, Lord Marland,
chair of the Commonwealth Enterprise and Investment Council (CWEIC)
readily admitted that it can be no replacement for the EU for
commerce.

While covering a third of the world’s population, it accounts for one
fifth of the value of goods and services the UK exports to the EU, and
imports in a similar proportion (8.8% of total UK exports/10.6% of
imports compared to 44.6% and 53.2% for the EU). It represents an
assortment of wildly differing countries, from Singapore to Sierra
Leone and from Belize to Bangladesh. More than half of the
Commonwealth’s citizens are contained India’s borders. Aside from the
UK, two-thirds of its GDP is generated by India, Canada and Australia.
No Commonwealth leader outside these islands was a cheerleader for
Brexit – Narendra Modi sees the UK as India’s gateway to selling to
the EU; for Canada, Britain is its “key vector of interest” in the
European Union. Twenty Commonwealth members have free trade or
Economic Partnership Arrangements with the EU and 24 have them
pending; only 5 are entirely outside the framework.

A bilateral deal with the UK may not offer Commonwealth countries
anything more than a deal with all 28 countries of the EU, and Brexit
negotiations could delay any such agreements. The imposition of a
multilateral Commonwealth free trade area would be unwieldy and
disruptive for an equal partnership of nations. The EU has hardly held
the UK back from growing its Commonwealth trade – UK exports to the
Commonwealth rose 120% between 2001 and 2011.

There are further problems: as former HM Treasury advisor Desmond
Cohen points out, UK exports are highly integrated with European
supply chains and there is no real way of substituting these without
hugely increased costs. With a switch of trade to the Commonwealth, UK
exports to the EU may fall foul of rules of origin requirements and
get hit by higher tariffs. Economist Pankaj Ghemawat’s work on how a
common language and shared imperial history boosts trade is cited by
Commonwealth optimists – yet Ghemawat says those factors are
outweighed by others in favour of the EU because of the distance of
Commonwealth countries from each other and their GDP levels. And while
Tony Abbott calls for a one page UK-Australia Free Trade Agreement,
Tony Blair’s former Europe Minister Denis MacShane points out that the
Australian Labor party sees a bilateral deal with the UK as a
“third-best outcome”.

These are powerful and perfectly logical arguments. But the reports
making them tend towards catastrophist thinking – eg countries that
have free trade agreements with the EU being unwilling to sign mirror
agreements with the UK – and fail to reconcile themselves with the
political circumstances of the vote for Brexit, and a government
intent on carrying it through, with Parliament’s support. They also
take altogether too much pleasure in the spluttering colonel
stereotype, suggesting all Commonwealth trade advocates hanker after
lost Empire, rather than look at the more humdrum things many are
actually saying: about member states’ youthful populations, fast
growth rates and common legal systems, and how the Commonwealth is a
useful jumping off point for the UK to achieve a full complement of
global trading partners.

On the eve of the Trade Ministers’ meeting, for example, the Royal
Commonwealth Society (RCS) was keen to promote its polling showing UK
businesses’ enthusiasm for the government to prioritise trade with
Australia, Canada, Singapore and India – an impetus for trade ties
from the grassroots up. The 17% year-on-year fall in sterling
following the referendum result has indeed given a fillip to British
exports (equivalent to a 7% boost by the start of 2018, according to
Standard & Poor). For Tim Hewish of the RCS, it is vital not to talk the UK down,
there are “small and symbolic things Britain can do to gear the wheels
of trade agreements with countries keen to trade with us” – however
confounding those agreements may in reality be to sign – and civil
servants carping about “Empire 2.0” is a travesty.

Hewish and others see international trade in starkly moral terms, with
the EU’s Generalised Scheme of Preferences offering, for instance,
tariff-free trade on agricultural produce while tariffs remain on
processed goods locking some developing countries into pernicious
dependency. The Legatum Institute’s Shanker Singham, a former trade
official, describes “extraordinary, Alice through the Looking Glass
conversations” with ministers urging preferences to be maintained,
with the added result that poor UK families pay more for their food.
(The EU Commission denies its trade policies have held back
development, a claim that backbench Brexiteer Peter Bone MP dismisses
as “lying”, pointing to the size of the German coffee processing
industry). With some lower income countries diversified enough that
they would welcome free trade, the time is ripe for change – Hewish
thinks that “you can eat values for breakfast”, with populations
becoming wealthier under free trade that in turn gives them more say
in how their taxes are spent, empowers women etc.

In a speech at the Guildhall last Tuesday, Lord Howell argued that
with the fragmentation of production processes and the emergence and
rapidly falling cost of new communications technology, world trade is
undergoing fundamental disruption. Pointing to a 2016 McKinsey report
that found digital information flow now has more impact on GDP growth
than trade in goods, he says that the service-dominated UK is ideally
placed to benefit and that the Commonwealth’s dispersed network fits
the future trade blueprint “like a glove”. Sir Ronald Sanders retorts
that it is a fallacy to simply look at total value of trade – people
can’t eat services or build infrastructure out of them, the need for
commodities including oil and gas continues, and current demand for
services in the Commonwealth is very largely concentrated in a handful
of countries.

Shanker Singham thinks the brightest hope for UK trade is through
reaching “plurilateral” agreements with a group of like-minded
countries, citing the 2006 P4 agreement between New Zealand,
Singapore, Brunei and Chile which provided the backbone for the Trans
Pacific Partnership. Formulated on an open accession basis, such
agreements carry much more market clout than bilaterals because they
can quickly bring in large swathes of the world economy. Over time,
Commonwealth countries’ shared values would attract more of them to
sign up; developing countries with more liberalised economies like
Ghana and Botswana would act as leading lights in their regions.
However, the Trump administration’s withdrawal from TPP, the public
dismay over the powers ceded to corporations in global trade deals and
the UK’s circumspection over globalisation suggest that following this
approach would be as fraught as anything in Britain’s current trade
predicament.

Intra-Commonwealth trade may still be “miniscule”, but it’s a great
opportunity to diversify exports in terms of basket and destinations
to reduce the UK’s vulnerability to shocks like the financial crisis,
says Rashmi Banga, head of trade competitiveness at the Commonwealth
Secretariat. “In India, Nigeria, South Africa, Kenya and the Caricom
countries, there are openings for many new services and products – eg
infrastructure, accountancy and legal services, [or] providing the
technology to the India Smart Cities project. This is where UK
services can grow exponentially”. The inaugural India-Commonwealth SME
Association trade summit in May will present opportunities. Grow the
value of trade now, and there may be more incentive to reach free
trade deals after 2019.

Meanwhile, Trinidadian economist Marla Dukharan gives hope to the
prospect of UK bilateral deals gaining traction. In her view, regional
association Caricom has been too weak and slow-moving to represent the
Caribbean at the negotiating table, and each island should seek a more
meaningful discussion over trade bilaterally with both the UK and the
EU.

The boisterously Brexit-friendly CANZUK movement with Tony Abbott and
historian Andrew Roberts among its leading lights calls for free
movement as well as free trade across Canada, Australia, New Zealand
and Britain. What do citizens of other Commonwealth nations think
would sweeten relations between their countries and the UK? Gaston
Chee, a Malaysian with an education business operating in China and
Britain, contrasts how London and Beijing court his compatriots: it
takes three months to get a bank account in the UK but less than 15
minutes in China. As for the May government’s insistence that foreign
students return home promptly after finishing their courses rather
than encouraging them to stay to build a business, “Do you think it is
fair to have paid hundreds of thousands of pounds and not be able to
attend graduation?”, he asks.

Rajesh Thind, a British-Indian writer and filmmaker who has spent five
of the past 10 years in Delhi and Mumbai, says Indians are predisposed
towards trying to understand and to work with the UK, “but it comes
from a muscular position of wanting a good deal and the securing of
free movement”. This needn’t mean long-term immigration – “it could be
two or five to ten years. A lot of people want to train up and go
back”. Peter Bone MP says he is potentially open to this – “One of the
great things about coming out of the EU is that if we want to decide
that, we can”. Thind echoes the recent calls on Channel 4 News by
dapper Indian MP Shashi Tharoor for Britain to come to terms with its
actions as a coloniser – for much more practical reasons, to Thind’s
mind, than post-imperial guilt. “The middle-ground in India is very
self-aware that rapid growth since 1991 has been a) very unequally
distributed and b) taken place in the context of bureaucratic inertia.
Cities are teeming, infrastructure is creaking, manufacturing needs
upgrading. We need expertise and partners… We can make the Indian
success story part of the British story, but that will take a
historical reckoning”.

Brexit and its consequences occasion radical and courageous fresh
thinking. The Commonwealth might yet assume an unexpected role in the
UK’s economic future – but this might take a brave new departure by
the immigration-chary May government, too.

The post What role for the Commonwealth? appeared first on New thinking for the British economy.

On trade, ‘Empire 2.0’, and the truth in Liam Fox’s nonsense.

In May 1840, William Gladstone said that he lived “in dread of the judgments of God upon England for our national iniquity towards China”, and that he couldn’t think of “a war more unjust in its origin, a war more calculated in its progress to cover this country with permanent disgrace”.

He was talking, of course, about the Opium Wars. If you need a reminder, they’re the ones in which the UK used its superior naval power to murder Chinese people until they finally allowed British drug pushers to flood their country with the then equivalent of heroin.

One of those industrial scale drug dealers – a Scotsman called Thomas Sutherland – understood that every big trade needs finance. And so in 1865, he and a few others founded the Hong Kong Shanghai Banking Corporation. HSBC is now the UK’s third biggest company, and still bogged down in drug-money scandals.

Britain’s second biggest company, BP, was founded as “Anglo Persian Oil” so that the UK could plunder newly found fossil fuels from Iranian soil. Our biggest, Shell, is similarly a long-term beneficiary of imperial might.

Today, in the wake of Phillip Hammond’s budget, Britain’s multiply disgraced trade secretary Liam Fox is meeting with more than 30 Commonwealth ministers in London in an attempt to discuss multilateral trade links. While this is exactly the sort of strategy that many Brexit supporters have long advocated, The Times has reported that the plan is derided by some civil servants as “Empire 2.0”. Which seems fair: Fox has a history of colonial yearning.

When the likes of Fox get all weak-kneed about the old days of the empire, we should perhaps give them the benefit of the doubt, and assume that their nostalgia doesn’t extend to the genocide, forced famine, concentration camps, castration with pliers, or rape with broken bottles, though the willingness to ignore all of these does tell us something important about the British psyche. What people are interested in returning to really is that other key element of imperialism: plunder.

The trade secretary’s strategy, tied to Tory out-rider Melanie Phillips’ vainglorious ultra-nationalism in the Times this week (top tip: never challenge the Irish to an argument about the history of these islands), is merely an official attempt to execute an economic strategy based on a growing cultural trend. In recent years, we’ve documented on openDemocracy the expanding fashion for what we’ve called British Empire Kitsch. From the ever-flashier bling of November’s annual poppy-fest, (which takes place, as it happens, on the anniversary of the date that my great-grandfather was declared ‘missing presumed dead’ at Ypres, and which ‘commemorates’ his death and millions more with flashy light displays and poppies on the side of bombers); to Keep Calm and Carry On mugs; to Jubilee street parties bedecked with bunting in the design of the same Union Flags which flew over some of the first concentration camps; to that same blood stained icon becoming a fashion symbol; the years of the long recession have brought with them a nostalgia for a time when life was easier, and Britain could simply get rich by killing people of colour and stealing their stuff.

All of this is made possible by lies: the lies many of us were told about what our great-grandparents were up to in India, the lies we told ourselves when we decided not to look too closely, the lies we told the peoples we subjugated: Britain is a country built so firmly on deceit, dishonesty and backstabbing that the symbol on our national flag is not just a double-cross, but a triple.

But it’s not just about the traditional opium smoke of nostalgia and untruth. The yearning for the days of empire is the result of more than the old fashioned desire to return to some imagined glory days. At the core of what Fox says, there is in a way an important honesty. For the six years that George Osborne was Chancellor, the government spent its time trying to persuade people that our country’s biggest economic problem was our fiscal deficit. There is an interesting debate to be had about whether he really believed this, and failed, or was using it as an excuse to flog off public services and drive down wages, and succeeded, but that’s another question. In reality, the deficit which the UK really should be worrying about, and debating solutions to, has long been that in trade.

UK balance of trade, from tradingeconomics.com

And here, the stats really are serious: Britain’s balance of trade averaged minus £1458.28 million from 1955 to 2016. Our trade deficit has become chronic. As Des Cohen, who was in the Treasury’s economics team at the time, wrote for openDemocracy back in November, it was the realisation that the Commonwealth wasn’t a big enough market for exports that lured Britain into join the EU in the first place. But, while leaving the Common Market certainly won’t help, joining it didn’t solve the problem either: our long term trade figures are a disaster. What Fox’s meeting highlights is that the government is being forced by Brexit to reveal its thinking in this area, and show that it really doesn’t have any better ideas than falling back on what the Financial Times’ James Blitz calls ‘delusions‘ and wishing that the last century hadn’t happened.

There’s another way to look at this problem. As the New Economics Foundation’s Laurie Macfarlane told me when I interviewed him last week, “much of the increase in paper wealth… that’s happened in the UK… since world war two, has actually been not a result of producing more stuff: it’s basically the result of increases in house prices: asset price inflation.”

In other words, since the end of world war two – which marked the beginning of the end of the British Empire, the UK hasn’t really figured out how on earth to pay our way in the world. Even during the days of imperialism, our trade successes came at the barrel of a gun and with the advantage of being at the centre of a vast sterling zone: it’s not because of a nose for the market that BP and HSBC had their early success, but because of the gunships sat in the port behind them. As, over the decades, country after country has secured independence and left the Sterling Zone, we’ve resorted to inflating the prices of the assets we built up over a couple of centuries and more of empire, and rapidly flogged them off.

Of course, much of this strategy still relies on our imperial remnants. Our Overseas Territory secrecy areas put London at the centre of the world’s money-laundering nexus. As Donald Toon, head of the National Crime Agency, described to the Financial Times “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”.

The right loves to talk about how Britain is a ‘trading nation’. But that, of course, is just another lie. The truth is that we are terrible at trade. We buy much more than we sell, and produce little that anyone wants. We’re so bad at selling things to the rest of the world that the government has started producing patronising adverts trying to coax British businesses into the international market. Even in the days when people did pay for our stuff, it was usually under duress.

The process of Brexit is likely to be a series of humiliating meetings in which the country is forced to accept a procession of ruinous trade deal terms – ruinous, at least, for the majority of the population. As it does so, expect Dr Fox, or whoever succeeds him if he’s caught in another scandal, to return home, waving the Union Flag ever more vigorously, and insisting in ever more pompous terms that this is another great victory for the Mothership Britannia. People might even believe it. We’re good at accepting lies.

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Samsung has been in more than a spot of bother over the last year. In October 2016, just two months after its release, the latest model in Samsung’s flagship Galaxy Note series was discontinued, as batteries within the phones had been causing them to combust. Exploding phones caused Samsung to lose its coveted spot as the smartphone vendor with the largest portion of global market share, falling behind Apple in the last quarter of 2016 for the first time since 2011.
Samsung’s corner cutting and dangerous practices haven’t been reserved solely for consumers either – they’ve hit their workforce too, seeing them replace Foxconn as the poster child of worker rights abuses in the electronics industry. A group of workers, their families and trade unionists – Supporters for the Health and Rights of People in the Semiconductor industry (SHARPS) – have been staging a sit-in at Samsung’s South Korean global exhibition space for over a year. SHARPS accuse Samsung of causing the death of more than 70 factory workers, and occupational disease of many others due to their exposure to toxic chemicals without adequate protection and are fighting for compensation for workers and their families, as well as for a full disclosure of the chemicals Samsung has required workers to use in manufacturing. Earlier this year a South Korean court confirmed that the Korean Workers Compensation and Welfare Service should pay compensation to an LCD worker – Kim Mi-seon, for Multiple Sclerosis she suffered through her work at Samsung – the first ruling of its kind.
SHARPS campaign is not an isolated case. In October, the International Trade Union Congress (ITUC) released a damning report on working conditions across all of Samsung’s supply chains, from China to Brazil and from South Korea to Indonesia. One of the most concerning allegations in the report is that Samsung operate a ‘no-union’ policy in its own factories and actively seeks to prevent the formation of unions at its suppliers. Attempts to restrict freedom of association are common with much of the global manufacturing industry, but few companies have been as effective as Samsung at achieving it. In 2014, it was estimated that across Samsung’s entire supply chain in South Korea, just 300 workers were members of trade unions. Samsung Electronics directly employs more than 300,000 people.
Samsung’s ability to suffer relative impunity is a direct result of the significance the company has in South Korea’s economic and political system. The centrality of the company to the economy of South Korea allows their practices to go unchallenged. Samsung is gargantuan monolith that is responsible for more than a quarter of South Korean exports, has an annual revenue exceeding the GDP of Cambodia and Honduras , and is responsible for almost a fifth of South Korean GDP. Samsung is the largest of the ‘chaebols’ – vast, Korean, family run conglomerates which are often accused of engaging in aggressive monopolisitc behaviour and asserting significant influence over government officials and policy. So unfathomably large is Samsung, and so wide its influence, a common joke among South Koreans is to refer to their country as the ‘Republic of Samsung.’
Since the 1997 economic crisis that affected South Korea, along with other so called ‘Tiger Economies’ of East Asia, much has been written of the declining political influence of South Korea’s chaebols. The state no longer has a majority stake in any chaebol and numerous executives have been charged and convicted for white collar crime. In spite of this, the few CEOs found to have engaged in embezzlement, bribery, fraud and tax avoidance have been granted pardons or offered laughably lenient sentences.
The true extent of corruption within the South Korean political system is slowly being revealed in the scandal that engulfed the currently suspended and impeached President Park. The scandal began to emerge at the close of 2016, with allegations that Choi Soon-sil, an associate of the president with no official government position, was granted access to confidential government documents, exerted influence over key aspects of state policy and extorted millions of dollars from the chaebols. As the scandal has boiled over into 2017, Samsung’s heir apparent Lee Jae-yong was arrested on February 16th, with authorities alleging over $30 million were paid by Lee to Choi Soon-sil in return for political favours in addition to accusations of embezzlement and perjury.
This isn’t the company’s first major run-in with the law. Lee Jae-yong’s father previously faced allegations of bribery of prosecutors, judges and political figures in 2008. He was sentenced to an almost $100 million fine and a suspended jail sentence after having been found guilty of financial wrongdoing and tax evasion, but was later pardoned by the then President of South Korea.
Only time will tell if this corruption scandal will cause more lasting damage to the political system and the chaebols that prop it up. Pressure is coming both from outside traditional structures, with up to 2 million people regularly taking to the streets in South Korea in protest over the scandal, and in the courts. Perhaps the time has finally come for long overdue reform of the political and business models of South Korea. With it, there would come a unique opportunity to ensure the dignity and rights of workers across the country, but specifically at Samsung.
In the meantime, the ITUC has gathered nearly 15,000 petition signatures calling for the abolition of Samsung’s no-union policy, and students across the UK and Ireland are taking action against and applying direct pressure to Samsung over the next two weeks, as international solidarity with Samsung workers grows. At a time when Samsung is under intense media scrutiny, we have a real chance of putting pressure on the company to improve working conditions within their supply chain.
Samsung and the struggle to hold them to account is a key example of how public procurement is being used in solidarity with local organisers to put pressure on companies and defend workers’ rights around the world: with people across the UK campaigning to get their college, university, local authority or other public body to join Electronics Watch, an independent labour monitoring organisation in the ICT industry.
You can sign the ITUC’s petition here.

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The future in a newly ‘freed up Britain’ after Brexit is beginning to show itself. Joanna Blythman outlined a scary vision for the Guardian when food rules are thrown aside as we race to do a trade deal with the US. From banned pesticides and GM foods to hormones and chlorine washes in meat, our whole food system is hostage to what other sectors want from the negotiations, and later from what other countries want from our trade deals. Jamie Oliver is worried… and meat inspectors fear the worst when we lose EU slaughter safety standards. They remove 560,000 cases of parasitic roundworm larvae in pork products annually.

The potential for ill health to be one of the outcomes from the shift to a global market place is very real. And it has been clear since Theresa May’s US visit that agriculture is likely to be up for grabs. Sadly the UK National Farmers Union, instead of sticking up for concerned UK consumers or decent farmers seems to agree suggesting that British farmers should be able to use the same production techniques to ensure “an even playing field”.

Brexit Secretary of State David Davis says the process will “not be about removing existing barriers or questioning certain protections”. Meanwhile his colleague Liam Fox, Secretary of State for International Trade, is rapidly setting up the possibility of trade negotiation agreements with the US, India, China and other major trading nations.

Despite apparent prioritisation of worker protection in the Brexit White Paper, food workers’ rights will inevitably come under huge pressure if we are trying to compete globally. If pesticide rules are removed or weakened for instance, under pressure from new trading partners like the US, it seems inevitable that vital protection for workers will be removed.

Few members of the public concern themselves on a daily basis with tariffs or non-tariff barriers. Understandably, it’s not that accessible or engaging. Unless you realise what they do to food standards and to prices.

Tariffs – sometimes called import duties or taxes – limit access to our markets and can mean a huge price tag on imports. Being in Europe meant that tariffs were negotiated as part of a large and powerful trading bloc. As part of the UK being a member of the World Trade Organisation (WTO) there are also quotas (called Tariff Rate Quotas) which allow a certain amount of product in without tariffs. 128 of these exist in the EU for food products including New Zealand lamb and American chicken. Licences are required to import and the administration is hugely complex. No-one knows what future tariffs and quotas will be negotiated and this really matters to the future viability of UK farms, farm workers and the farmed environment. Work is underway to establish Britain’s own schedules (what we can trade in) at the WTO, after Brexit.

But it gets even more complicated (and scary) when you look at those non-tariffs barriers (NTBs). These are obstructions that affect imports such as border administration, labelling rules, employment and food safety laws. One country may not be able to export to another because their standards are considered not good enough, or not “equivalent”, or even “substantially equivalent”. The ban on hormones in beef is one example but there are many, and sometimes lead to protracted legal disputes or retaliatory trade bans or economic tit-for-tats between countries. What one country sees as protecting public health, another may see as protectionist and trade distorting. They can be challenged at the WTO.

The big question now is how far Britain will go to be a country that can compete on global markets. Once out of Europe, will we allow the 82 pesticides used in the US but banned in the EU? Will we open the gates to genetically modified (GM) foods with no labels, permissible in the US but currently not here? Will we have control over the standards of meat entering our school or hospital food, or will those standards be governed by trade deals?

There is also the matter of what we are going to be allowed to do in terms of supporting farming and land managers, to achieve for example environmental or rural development aims. To reduce the potential for trade-distorting state subsidies, there are WTO limits on how much support a country can give its food producers – called the Aggregate Measure of Support (AMS). We don’t know yet how much of the EU-wide AMS we will be allowed to spend all by our self. It’s likely to be cut but could still break WTO limits.

Conservation groups and farming bodies are getting dizzy in meeting rooms over what we could now set up, now we are going to lose the long–criticised Common Agriculture Policy. But what we do next needs to fit a global agenda and that agenda may not be all that friendly.

But the good news is that the more we specify public goods or benefits being the outcomes of our policy the better. With enough public pressure, those public goods should act against the nasties outlined by Blythman. But it will be a battle. Advocates for cheap raw materials for the processed food industry and cheap food will be working hard to weaken standards.

I am sure the public, whilst wanting affordable food, would not want a race to the bottom. Recent research shows that the public want support for agriculture to do more for nature. Let’s hope they stand with us in demanding policies that protect our health not some mythical free trade, export-led growth nirvana which really only suits global Big Food Inc.

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Brexit raises fundamental questions not only for the UK but also for the EU and it is far from obvious that either the British or the leaders of the EU have grasped this fact. The government of the UK has demonstrated a total incapacity to understand the threat that Brexit poses for the economy and seems to think that it can muddle through despite the risk of the economy unravelling and with it the political union. The government says that it will not only withdraw from the EU but also from the single market despite opposition from almost all of the business sector in the UK.

Mrs May seems to believe that developing closer relationships with the USA – in the guise of a closer alliance with President Trump – is the best option for the UK. This is despite the evidence that the US is entirely ruthless in pursuit of its own objectives. Mr Trump has already announced that NAFTA is a dead treaty and that production by US companies in Mexico should be relocated back to the US irrespective of the effects on employment in Mexico, or the higher cost of imported as well as domestically produced goods in the US.

It is worth also recalling that when Britain desperately needed economic assistance in the Second World War that the US insisted that it sell all of its external assets which were then acquired by the US at knock-down prices. Not surprisingly in the years after 1945 the UK experienced extreme economic adjustment precisely because of the forced liquidation of overseas investments during the war. In the famous book by Servan-Schreiber [1967] the US was described as ‘le defi americain’, and the European Economic Community was seen then as a necessary counterweight to US economic imperialism.

By the 1960s the UK had run out of all its trade options – the Commonwealth no longer offered market growth for UK exports and indeed those goods that the Commonwealth imported were no longer products for which global markets were growing rapidly. The attempt to find markets through the European Free Trade Area proved illusory and by the time Macmillan was in office [the early 1960s] it was clear that Britain’s trading future lay with the EEC [precursor of the EU]. So the UK has been a member of the EEC/EU since 1973 and has gained enormously from access to a large and growing market such that today over40% of its exports go to Europe. The contribution to GDP from membership of the EU is hard to measure but is estimated to be of the order of 10%. due to economies of scale in production, greater competition and access to markets with higher levels of demand growth.

Any review of recent trade developments provides two important conclusions. Firstly, leaving the EU and the single market which is the policy of the May government would entail enormous and avoidable costs. The presumption that there are accessible markets out there for UK exporters to tap – and alternative sources of imports – is simply unfounded. Secondly, after almost 50 years as members of the EU the UK has developed patterns of production (and of consumption) that will take many years – and be extremely costly – to adjust. Systems of production have developed which depend on linkeages between countries such that the UK will need to find alternative non-EU suppliers for many inputs, and will also face the common external EU tariff in respect of its exports. There are also bound to be very negative impacts on both direct and portfolio investment by foreigners in the UK.

In an internal memo of JP Morgan their chief economist stated that, ‘much of the plumbing that affects trade in goods and services on a day to day basis would be left without defined administrative process and legal foundations. The importance of tariffs is almost a sideshow relative to these issues’ (November 2016). He also concluded that Brexit was extremely dangerous for UK jobs and that any treaty with the EU was unlikely before 2019.

Britain is of course still a member of the EU and is likely to be so for at least a couple of years – and probably considerably longer (the previous UK ambassador to the EU estimated it would take 10 years to complete the negotiations). This being the case the UK does not have the legal authority to negotiate new trade treaties with third countries although clearly it can hold informal discussions with potential partners. What is clear is that the UK does not have the experienced professionals to engage in the process of trade negotiations and it’s unclear where this expertise is to come from.

What we do know from experience of past negotiations is that the US is extremely tough and pursues its domestic interests relentlessly. So any negotiations on trade with the US will have to face extremely difficult issues such as those relating to animal welfare, GM commodities and products, access to US markets for agricultural products (and the heavy subsidisation of US production) and legal and other protections for US corporations. Concerns about the latter have figured heavily in recent trade discussions between the US and the EU where there is general dismay about the rights that have been demanded for US corporations with potential to sue for financial damages where US companies have been supposedly affected by national policies, eg on health, GM products and so on.

Reducing immigration is primary ?

But irrespective of the evidence the British government still says that all that matters is reducing immigration and everything else is secondary. That this is best achieved through withdrawing from the EU and the single market despite the impact on society and the economy. It is as if the government cannot understand that the British economy has over many years become dependent on the human capital embodied in the flows of labour from the EU and elsewhere in the world. This high level of dependence on immigrant labour across all sectors reflects the dismal failure of all governments who were not prepared to invest in education and skills so as to meet labour needs.

At the present time around 15% of the active labour force is composed of immigrants and key economic sectors such as health, education, construction, transport, social care, agriculture,  banking and finance and tourism could not function without their contribution. Overall their contribution to net output and to fiscal receipts are such that both the Office of Budget Responsibility and the Institute of Fiscal Studies have warned of significant effects on the fiscal balance and on economic growth were there to be any major reduction in the contribution of immigrants to national output.

But let’s assume that the British government is determined to leave the EU and the single market primarily in order to be able to control immigration, despite its importance to the economy and to the fiscal position of the country. How it will replace the labour that is currently provided by immigrants is unclear given that the capacity to generate from domestic sources the necessary skilled and highly educated labour does not exist. For many years the British economy has depended on drawing down the investment in skills etc of other countries because it has not been prepared to develop the domestic capacity, ie. it has not been willing to find the resources to invest in training and education.

Developing that capacity will itself take years to achieve given that the capacity would have to be established or at least greatly expanded before there was any flow of trained and educated workers. This is a long term project and would be costly and there would be ongoing dependence on immigrant labour for many years to come. Among the many steps that the government could take now if it seriously wanted to reduce dependence on immigrant labour are to stop cutting education budgets, restore the funding of Further Education Colleges and bring back the Education Maintenance Allowance – all of which assist nationals in acquiring the education and skills that are desperately needed.

What is surprising is that not only does the May government not understand these issues but that the leadership of the EU made such feeble efforts to address the looming crisis prior to the in/out referendum in June 2016. It was not helpful then and not now to reiterate the mantra that free movement of labour is central to the functioning of the single market and that UK cannot be permitted a derogation from it. Whereas it would be much more sensible to accept that countries facing unstable labour markets characterised by precarious employment conditions and falling real wages should have the ability to manage labour flows whether from within the EU or globally.

These labour market conditions are not confined to the UK and other countries are interested in greater control over flows of labour, and in particular the abolition of the posted workers directive which permits employers to undercut locally negotiated wages including minimum wage laws. There is nothing to prevent the UK now from developing policies and programmes that re-structure labour markets with the objective of raising wages and ensuring that employment opportunities in low wage sectors are largely confined to UK nationals. Administrative action is possible through the system of national insurance numbers to restrict the flows of migrant labour into low wage jobs. This does not mean that the existing 3.2 million EU citizens currently in the UK would lose their employment and the government needs to state clearly that their employment rights are protected.

Reforms for all EU members

Here we come to the crux of the problems facing the EU. It is surely of relatively minor importance to allow members the freedom to manage labour flows than to risk the further destabilisation of the Union and possible exits by other countries. Not only will the UK experience social and economic costs as a result of Brexit but so also will other members of the EU. These avoidable costs arise from loss of market access for goods and services, reduced contributions from the UK to the EU budget, greater costs in accessing the financial markets located in London and restrictions on access to the UK labour market for EU citizens.

What Brexit brings to the fore are the real issues confronting the EU which are the relevance of the original principles in its establishment and subsequent policy developments, especially the Euro, for its ability to function and survive in a rapidly changing world.

It may be useful to list some of the EU’s achievements:

• It has established a single market for goods and services and although there are still uncompetitive practices, especially in services, the opening of national markets has raised output and incomes across the Union.
• It has during the past several decades successfully expanded to a membership of 28 countries (as against the original 6) and integrated many of the countries formerly part of the Soviet system with great success.
• It has through the linking of economic and social systems across many countries strengthened the forces of internationalism in many ways, and established mechanisms for conflict avoidance/resolution such that the countries of Western Europe have had 70 years of peace. Aided and assisted of course by NATO.
• It has supported rapid transitions to higher levels of output and employment in many countries through infrastructure investment, technology transfer, and institutional development, not only in countries that have recently joined but in Spain, Portugal, and Italy among others.

These are important achievements and it is important not to sacrifice them through ill thought out reforms. There are of course negatives as well. These include the establishment of the Euro as a monetary arrangement without a fiscal union such that in recent years rather than economic stability and competitive convergence countries have diverged in terms of output and income, and many have as a consequence experienced severe social and economic distress. This was and still is avoidable through reform of the Euro provided there is leadership especially from Germany as the strongest country in the Union.

What seems evident is that the EU is lacking in any strategic leadership. The Commission President seems to see his role as ensuring that nothing is effectively done on tax havens and on the taxation of large multi-national companies. This is a role which he developed when in office in Luxembourg and it seems only too clear that the Commission as a whole has been largely captured by lobbyists. There is no strategic leadership from Germany (and France) and nothing useful can be expected from the European Parliament. That the EU suffers from a democratic deficit is recognised by everyone, and this is another area for urgent reform.

So the key objectives of the EU have largely been achieved and many countries have benefited from the freedom of trade between member countries. The euro as a monetary arrangement needs urgent reform as also does the system of support for agriculture. Not least, the EU needs to do something effective about tax havens and ensure that global companies such as Google and Apple pay appropriate taxes. The role of the European Parliament needs to be revisited with the aim of building effective democratic institutions. Common policies need to be strengthened especially in the areas of climate change and the environment.

The Union has proved more or less totally unable to deal with the problem of refugees fleeing conflict in the Middle East and yet this problem is only going to intensify. Many countries in Africa have growing and youthful populations, high levels of unemployment, often tyrannical regimes and are already experiencing the impact of climate change such that large numbers of people are going to try to migrate into Europe. There is no evidence that the EU understands this threat nor that it has policies in place to meet the challenge. This despite the fact that refugees are already a major issue in some countries, such as Hungary and Poland, contributing to the rise of right wing parties in many EU countries.

The role of lobbyists needs to be addressed and systems developed to ensure a much wider representation of citizen interests and concerns. In part the achievement of these reforms depends on new and committed leadership in the Commission and this will not be achieved under those currently leading the organisation. The existing relationship between the Commission and the Council of Ministers, where the real decisions are taken, needs to be re-visited such that the Commission is strengthened and made more effective.

What is not essential to the functioning of the EU is the total freedom of movement of labour, and systems need to be created that permit members to manage labour flows in collaboration with the Commission. If this reform is introduced with speed then perhaps the current problems created by Brexit will disappear or at least be sufficiently ameliorated that the UK would be able to continue as part of the Union in some form. A possibility – even if not a certainty but preferable to continuing on the present disastrous trajectory.

The last thing the EU needs is a low tax offshore haven on its doorstep which also undercuts working conditions in the EU through derogation from established standards by a British government facing uncontrollable problems caused by Brexit. Yet this is something that the UK has threatened if a productive trade deal is not negotiated. The British government seems prepared to further destabilise its own fiscal situation by cutting corporate taxes and thus adding to the budgetary problems generated by falling output, rising unemployment and any reduction in migrants.

Who would lose most from such behaviour is fairly obvious, and making unrealistic threats does not seem a sensible basis on which to negotiate with our partners in the EU.

The threat by the British government that it will turn the UK into an offshore tax haven – as if in practice it wasn’t already – is similar. Some of the most egregious tax havens such as the British Virgin Islands and the Turcs and Caicos Islands, and Jersey and the Isle of Man…and so on and so on…. are already providing tax saving opportunities for the global rich and for international companies such as Apple and Amazon.

It is also no secret that the largest centre globally for money laundering is the City of London so it’s hard to see what extra the British government could do to make things worse for everyone else including countries in the EU. It is also evident of course that the UK itself would benefit from tackling tax havens and setting up effective systems for reducing money laundering.

There is a fundamental misunderstanding in government of the role of the City which has become a major source of employment and taxation in recent decades. It is precisely because London is interconnected with a large and generally prosperous market that it has been able to thrive and ending our economic and political relationship with the EU threatens this inter-dependence, in the same way Singapore and Hong Kong have thrived precisely because of their connexions with dynamic economies in Asia. Leaving the EU and the single market as May proposes threatens the business of the City and it’s unsurprising that HSBC and UBS both announced after the May speech on November 17^th that they were moving thousands of highly paid jobs out of London and to Paris, Frankfurt and elsewhere in the EU. Not in the distant future but more or less immediately.

Both Britain and the EU can prosper – if opportunities are grasped

What is essential are reforms both in the UK and the EU so that both can be a force for good in a very unstable and uncertain world. With Mr Trump in the White House and Mr Putin in the Kremlin we sorely need the stabilising influence of the EU – preferably with the UK as a continuing member. It can scarcely be a serious objective of British policy to both undermine its own prosperity and set in motion developments that add to regional and national instability.

Even preserving the unity of the Tory party can’t be worth these risks and yet this seems to be all that the present government is concerned with. The story that it is implementing ‘the will of the people’ is not much more than a fable. More than 13 million of those on the electoral register didn’t even bother to vote, and of those who voted to leave it is entirely unclear what they were voting for. Did they really vote for UK to become an offshore tax haven with falling real incomes and high levels of unemployment or did they vote for the oft-repeated promise of more resources for the National Health Service? And did they realise that going forward with the current policies of the government would probably lead Scotland to exit the Union? For what? – to keep the Tories in power and leave UKIP stranded having lost its main political message.

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It’s déjà vu all over again.

This malapropism is usually attributed to Yogi Berra, a famous baseball player in the early 1960s. It also seems to be appropriate now when thinking about international economic policy in the UK. I could have written ‘analysing’ rather than ‘thinking’ but that would suggest that current policy is the outcome of a serious discussion of options and estimates of the costs and benefits of alternative possibilities. Unfortunately policy makers seem not to have any understanding of the history of Britain’s recent relations with Europe and seem intent on unravelling what has been put together in recent decades irrespective of the impact on both the UK and our partners in Europe. The following will hopefully throw some light on the how and why of where we are presently but is in no sense intended to be other than a personal account of past events that ought to have some weight in current policy development.

I joined the Treasury in the mid 1960s during Harold Wilson’s first government and had a remit that focused on international economic policy. At that time the Government Economic Service was truly professional and was headed by professor Alec Cairncross who was highly experienced in government and very insightful about economic policy. Other economists on the staff included Wynne Godley who subsequently became professor at Cambridge and his close collaborator James Shepherd. There was a depth to economic analysis and policy discussion across Whitehall that has subsequently been eroded in part through the appointment of special advisors who are essentially political aides rather than economists. This weakening of the policy making process is unfortunately only too evident and in part explains the cumulative failures of recent years – not least the deadweight-losses and distributional costs of Osborne’s austerity policies.

The Labour government had a majority of 4 when it took office in 1964 and had inherited a balance of payments in significant deficit. The previous Tory Chancellor (Maudling) had been advised to reduce domestic demand in the 1964 budget but had chosen to ignore this advice and instead cut taxes in advance of the autumn election. But preparatory work went ahead in the Treasury so as to have a range of measures in place to deal with the expected sterling crisis which would inevitably occur given the forecast balance of payments deficit. Wilson chose not to devalue the exchange rate and chose instead a temporary import charge which reduced over time the level of imports. But the underlying position of an overvalued exchange rate continued until the UK was forced to devalue in late 1967 under conditions that were extremely costly for the Treasury and the country.

This background is relevant in that by the 1960s the UK had reached the end of the line in respect of international trading relationships. The Commonwealth which in the 1930s had sustained the British economy had ceased to provide growing and dynamic markets for UK exports in the post war period and indeed had to a degree held back the industrial regeneration that was needed. Thus Tibor Barna demonstrated in an influential paper that dependence on slow growing Commonwealth markets was part of the problem and that shifting exports to faster growing markets would generate more competitive production. The UK had grown slowly during the 1950s in part because of the constraints of the balance of payments (a stop/go economic cycle) and had lagged behind our European competitors. New trading relationships were thus seen as essential if the UK was to break free of the constraints of the balance of payments but there was disagreement about what to do.

On the one hand there were those who wanted to maintain the Commonwealth relationship of essentially protected trade dependent on a set of defence and other preferred relations. This despite the fact that such markets did not display the patterns of demand that were essential if the UK was to develop new and growing industrial capacity. Hence the dispute that went on for ever within the Tory party about sustaining the Commonwealth ties despite the fact that the latter were themselves developing new markets for their output/exports. As we shall see below some of these arguments reverberate today given the belief of some of those supporting Brexit that there exist alternative markets which could easily replace access to the EU single market. The question becomes whether such markets exist and whether the UK would be competitive in the face of for example Chinese, Indian, and Vietnamese products.

In 1957 the six European countries signed the Treaty of Rome establishing the European Economic Community. At that time the UK would have been welcomed as a member but chose not to join and instead formed a rival bloc of seven small countries (EFTA – the European Free Trade Area). It was hoped that EFTA would provide some of the trade growth that UK so desperately sought without the various obligations involved in the EEC whilst allowing the UK to sustain the Commonwealth relationship. EFTA was never a realistic alternative to the EEC and this soon became apparent even to the Tory party that was in office throughout the 1950s and until 1964 when Wilson won the election. Macmillan had by the early 1960s decided that Britain should join the EEC but faced problems within his own party and also from the French. De Gaulle had decided that the UK was simply a ‘trojan horse’ for the USA and after the Nassau agreement on nuclear weapons essentially an American colony.

Charles de Gaulle, by fr.politique.wikia.com/

By the mid 1960s, the UK had run out of options. The Commonwealth couldn’t provide the market growth that British industry needed; EFTA was too small a market to generate the industrial economies of scale needed if the UK was to compete with the Germans, and the French were not prepared to let the UK join the EEC. Wilson when he took office realised that the future of the UK lay with the EEC and he took up the UK application to join in the later 1960s but continued to be rebuffed by the French. Internal economic assessments in Whitehall showed quite clearly the costs and benefits of membership of the EEC with overwhelming support for the gains from membership. Opponents of membership of the EEC within the Cabinet still persisted in supporting the Commonwealth option and some Labour ministers even proposed setting up a free trade arrangement with the USA. As we shall see below the UK tried to address the concerns of the French and these were to a degree easier after the changes in UK defence policies when Wilson abandoned its East of Suez commitments.

But it was left to Edward Heath when he took office in 1970 to actually engage with our European neighbours and he signed the Treaty of Accession in 1973. So finally the UK, having tried all of the various options, had concluded that the EEC was the best and it signed on the bottom line. Of course one of the consequences of joining the club was that the table had been set in the interests of the original members, and the UK had more or less no option but to accept arrangements some of which were definitely not in the British interest such as the Common Agricultural Policy. Herein lies part of the problem with the EEC since its structure wasn’t ever set in the interests of the UK but of the founding members. Mrs Thatcher managed to get the famous fiscal rebate to reflect that fact that the UK was contributing excessively to the EU budget, and has increasingly sought opt-outs from policies that supposedly do not meet British needs. This increasingly semi-detached relationship has not endeared the UK to its EU partners and one would not expect them to be falling over to please Brexiteers in any negotiations as and when these begin in 2017.

A digression – or is it: Concorde

There was great secrecy surrounding the development of Concorde and although public funds were used to support the project from the early 1950s it was not until December 1962 that parliament was allowed to have a debate. Attempts had been made to try and get the USA to share the costs of development but they turned down the opportunity having a totally different view about market opportunities for aviation growth. Proponents of supersonic aircraft made sure that the project was kept as far as possible away from Treasury oversight even though development costs had already vastly exceeded the estimates originally produced. In the end the development costs were no less than 15 times the original estimates.

Tory governments during the 1950s were keen to take forward Concorde in part so as to support the British aviation industry which was reeling from the failure of the Comet aircraft. In part the problem was an engineering one – how to design a plane which could carry enough paying passengers and not make operational losses in the process. This was never resolved and the plane often flew with only half of the seats occupied. There were also the severe environmental issues – of noise and pollution – which were never solved and exercised the minds of many of those affected by the plane in urban settings. While back of the envelope projections were made in the Ministry of Aviation of a market for the aircraft of between 150 and 500 planes only 16 were ever produced. These were acquired by British Airways and Air France which were both national carriers at that time either at discounted prices or for free. Both airlines were also given guarantees by their respective governments against operational losses.

The Macmillan government having been rebuffed by the Americans turned to the French and discussions started about a joint venture in 1959 and finally in 1962 an agreement was reached on funding and development of Concorde. What is remarkable about this agreement is that no market assessment was ever made and no one ever approached the main airlines to ask whether they would buy a supersonic aircraft. Furthermore it was agreed that if either partner pulled out of the project then they would have to fully compensate financially all of the costs incurred by the other country.

Why was the British Government so committed to Concorde? Well the answer to a degree relates to the discussion above that UK had by the early 1960s decided that its trading future lay with the EEC. The joint development of Concorde with the French as a full partner was supposed to demonstrate two things. Firstly, that UK would bring to the EEC a viable and high tech aviation industry to rival the dominance of the USA, and secondly that it was now committed to a European market as represented by the Economic Community. Macmillan was not of course committed to the vision of Europe of Monnet and Schuman who saw economic arrangements as a stepping stone to broader political integration. Rather, Macmillan’s decision in 1962 to apply to join was essentially economic and herein in part lies the genesis of the problem in the longer term.

Unfortunately for Macmillan the French were not convinced that the UK was ready to join the EEC and De Gaulle rejected the application in January 1963. When the Wilson Government came into office in the autumn of 1964 it looked at the agreement with France and at the costs of developing Concorde and tried to cancel the project. They were appalled at the fact that no commercial assessment had been made of the market for the plane and that cancellation by either partner would lead to compensating the other for all of the costs incurred. Labour decided it was simply easier to continue with the project rather than cancel it. Furthermore, as noted above, Wilson became convinced that joining the EEC was the only viable strategy so he took up the application that was still on the table and engaged the French government in further discussions. Concorde was part of the background to the discussions but in itself proved insufficient to get the French to change their opposition and Pompidou again rejected membership.

The best and easiest accessible analysis of the tangled web of events relating to the development of Concorde is to be found in the Atlantic Monthly, Jan 1977 (Supersonic Bust by Robert Gillmann). It’s a sorry story and an example of the far too many appallingly bad public investment decisions made by British governments over the past 50 years. The project was hugely expensive – estimated by David Henderson who was chief economist at one stage at the Ministry of Aviation at £4.26billion in 1975 prices. The Concorde project furthermore tied up the scarce engineering and design capacity of the British aviation industry for decades at a time when the global market was expanding rapidly. Allowing this hugely profitable market to be captured by the Americans who had rightly seen no future in supersonic flight.

And then there is Hinkley Point C

Hinkley Point nuclear power stations, by Richard Baker.

The parallels between  Concorde and the decision made in September by the May government to go ahead with the building of the first nuclear power station for many years is truly amazing. It is as if the British have a preference for investments that are white elephants, and are determined to go ahead with immensely expensive projects despite the evidence that they are not the best solution to national needs. The French, Chinese and British governments have agreed jointly on the building of Hinkley Point C at an estimated cost of £18billion. This is despite the fact that the technology is untried and that the 2 plants presently under construction in Finland and France are years behind schedule and well over budget. The Finnish plant was due to come on stream in 2009 and is now 5.2 billion euros over budget while the French plant is 6 years late.

As with Concorde, the government has chosen a technology that is risky when other alternatives are available. The government has itself confirmed a report from the National Audit Office (July 2016) that by the mid 2020s that large scale solar and onshore wind power would generate electricity more cheaply than that produced by Hinkley Point. Indeed, the government estimates are that sustainable sources of energy would be half the price of nuclear. Furthermore there would not be any need for the price guarantees given to the Chinese and French developers in the contract (the latter are expected to add very significantly to the electricity bills of consumers over several decades and have been estimated by the National Audit Office as up to £30billion). There also remains the complex issue of responsibility for decommissioning the nuclear plant and who bears the cost of this huge and unpredictable expenditure. Notionally this will fall on the developers but the contracted costs look as if they will be far below the actual cost and the huge excess will fall on UK taxpayers.

So why would the British government choose nuclear over the available alternatives? The technology is untried, the costs of construction are inevitably going to be billions more than estimated and the project delayed by many years, and the costs of operation greater than competing sustainable energy alternatives. There will be ongoing subsidies to operators and the clean-up costs impossible to predict but inevitably huge (the present estimate is up to £7.2 billion but they will be many times that figure). There are so many elements here that parallel the case of Concorde and in the final analysis the costs will again fall on the UK tax payer.

Where are the benefits?  Well these seem to lie in the nebulous and unlikely possibility of access to the Chinese market for British exports, and an ability to draw down Chinese direct and financial investment in the UK. In the case of exports of goods and services to the Chinese these are already possible under WTO rules so what would be gained by the Hinckley contract? Similarly in the case of Chinese investment where the Chinese will make rational decisions on where to put their savings and this will depend on the usual assessments of financial return and profitability. Of course the investment in Hinkley Point may generate further opportunities for Chinese nuclear contractors in the UK but this is highly uncertain given that nuclear will be a high cost option relative to other sustainable energy.

In large part the British are going ahead with Hinkley because of the market disruption caused by Brexit. The loss of privileged access to the EU market for goods and services will mean finding alternative markets – and the Chinese market is huge and is growing. But as noted above, for most products, the Chinese are a much lower cost producer than the UK. So where would the market opportunities lie? The British current account is already in large deficit and has been for many years and has been financed by capital inflows – some of it from China. The hope presumably in government is that it will continue to be possible to draw-down Chinese savings to finance the ongoing deficit – a deficit that will probably widen after Brexit. But this is a highly uncertain strategy and one that no sensible government would find attractive given the political structure of China and instability in Chinese/Western relations.

Where to now?

Membership of the EEC and subsequently the EU has been immensely beneficial to the UK. There have been large and ongoing economic benefits as was predicted in the early assessments undertaken in Whitehall in the 1960s and subsequently confirmed by innumerable economists. The recent Treasury assessment of the cost of Brexit of a reduction in British GDP of between 5.4% and 9.5% looks only too realistic, and represents an estimate of the gains to GDP that the UK has had from membership of the Community.

There have, of course, been non-quantifiable benefits which have been just as important not least the opportunity to draw on highly skilled and professional labour from across the EU over many years. Not least of the benefits has been an awareness over time that the future of the UK lies in cultural and social integration with our partners in Europe – recognised most fully by the youth of Britain who overwhelmingly voted to remain in the EU in the June referendum.

There is no realistic alternative to the EU available to the UK out there – a world of supposed ‘free trade’ which has been always a fiction in the minds of a few classical economists and naive Tory politicians. As we have seen above in the brief history of our accession to the EEC and subsequently the EU there is no alternative, as even Mrs Thatcher finally realised as she signed the Treaty of Maastricht.

What we now have is a world of managed trade where membership of a large trading bloc such as the EU is essential for access to global markets on reasonably fair terms. There is no way the UK could freely compete with the low wage economies of East and South Asia in most manufacturing products. Rather the future of the UK has to lie with products and services that embody high levels of education and technology. These are precisely the capacities that are developed and sustained by ongoing membership of the EU.

Brexit, if it ever happens will cause deep economic and social costs and is totally avoidable. It would be yet another example of policy decisions of which there have been far too many examples in recent British history and which have been disastrous in their impact on the population. If Brexit is persisted with by the present government, not only will it reduce GDP, cause high and unnecessary unemployment, and social distress but it will probably also lead to the breakup of the UK.

Why would any government choose to go down this path?

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Britain’s economy has deep, structural problems.

Investment

The proportion of GDP invested by the UK is lower than almost anywhere else in the world. Excluding intellectual property, the ratio for the last quarter of 2015 had dropped to 12.7%. The world average is about 24% and in China it is little short of 50%. Fixed asset depreciation in the UK is running at about 11.5% per annum, so our net investment as a proportion of GDP is barely 1%. Just to avoid our accumulated capital assets being diluted down by our rising population we need to invest approximately 4% of our annual GDP. Furthermore, of the very low total we do have, barely a quarter is spent on machinery and technology, which are the only real drivers of increased output per head. This is why productivity in the UK is almost static.

Deindustrialisation

The proportion of UK GDP arising from manufacturing is now barely 10%, having been almost a third of GDP as late as 1970. Almost all low- and medium-tech internationally tradeable manufacturing activity has been wiped out. As a result we have lost very large numbers of good quality blue collar jobs; we have enormous regional imbalances in incomes, wealth and life chances; we have lost out on the productivity gains which manufacturing is much better at producing than services; and – perhaps most crucially of all – as most of our exports are goods rather than services, we do not have enough to sell to the rest of the world to enable us to pay our way.

Balance of Payments

Partly because of our large and rising trade deficit, we have the biggest balance of payments deficit of any advanced industrialised economy. It is not just our trade performance, however, which is a problem in this regard. We also now have a very substantial negative investment income position with the rest of the world, further aggravated by large transfers to the EU, net remittances abroad and on our aid programmes. By the last quarter of 2015, our balance of payments deficit was running at 7% of GDP and it appears still to be on a rising trend.

Debt

Both as a nation, through our government and as individuals, we are piling up debt far faster than our capacity to repay it. Our balance of payment has to be financed by the UK either selling assets or borrowing more money and we have been doing both. A major reason for our worsening balance on income from abroad is that every £100bn deficit financed by the sale of assets or borrowing – typically at the rate of about 5% per annum – adds another £5bn to our income deficiency cumulatively each year. Because the government deficit is largely the mirror image of our trade deficit, there is no prospect of the government ceasing to have its own very large deficit unless our foreign payments position is brought back under control.

Growth

What relatively little growth we have achieved in recent years, compared with the experience in many other parts of the world, has been driven very largely by ultra-low interest rates and asset inflation pushing up consumer demand rather than by growth being led by net trade and investment. We have seen a welcome reduction in unemployment but no increase in average incomes, partly as a result of our rising population and partly because any increase in household expenditure has been financed by rising debt.

The questions which need to be addressed, in the light of these imbalances, are:

1. Are current slow growth trends sustainable or is there – at best – going to be a long period of very low GDP increase, especially per head of our rising population, leading to static living standards for the foreseeable future or – at worst – a downturn in performance making conditions for many people even worse?
2. Are there any policy prescriptions which could reverse the imbalances, to enable the UK economy to perform much better? Would it be possible to do this without getting investment up from well under 13% to perhaps 20% of GDP or more? Could we get our balance of payments position into manageable condition without something like 15% of our GDP coming from manufacturing? What would a model of the main UK economic aggregates look like if we were to aim to get back to a sustainable growth rate of 3% or 4% per annum?
3. If the economy is to be rebalanced, how are the financial incentives to make this happen going to be created and what should the role of government be? How much would depend on demand side changes being made on monetary, fiscal and exchange rate policies and how much on supply side initiatives on training, planning. Would this need to be accompanied by some kind of industrial strategy?

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Keep a look out for our upcoming pieces examining how to rebalance the British Economy.

The post We need to rebalance the British economy appeared first on New thinking for the British economy.

In some ways the UK economy is doing quite well. There is nearly full employment. We are experiencing some – but not much – economic growth. Inflation is not a problem. But in other ways we are doing much worse.

In particular, the UK economy is extremely unbalanced in at least five ways. The proportion of our national income which we devote to physical investment is one of the lowest in the world, which is the main reason why we have almost no increase in productivity. We have de-industrialised to a point where we cannot pay our way in the world. For this and other reasons we have a massive balance of payments deficit, now running at about 7% of GDP.

To finance this deficit, we are running up debt in all directions. Our debt is growing much faster than our capacity to service it, let alone repay it. And finally, what little growth we do have is almost entirely driven by consumer demand and not by net trade (export minus imports) and investment. Because of all these inter-related problems, we have static incomes, widening disparities in wealth and incomes, a deeply divided country on both socio-economic and regional counts, and an unsustainable future.

What can be done to overcome these problems? Basically, they all stem from the same source. Our economy is deeply uncompetitive. The price we charge the rest of the world for our goods is far too high, which is why most of our industry has collapsed. Even as late as 1970, almost on third of our GDP came from manufacturing.  Now it is barely 10%. Because most manufacturing has for a long time been unprofitable to locate in the UK, we don’t invest in it, which is a major reason why our total investment levels are so low.

No other developed country has a foreign payment balance as bad as ours.  We cannot go on enjoying a living standard which is 7% more than we are earning. No wonder, then, that we are running up debts at an unsustainable rate. A foreign payments deficit sucks demand out of the economy which has to be made up by spending financed by borrowing if the economy is not to collapse. This is why both the government, the corporate sector and consumers are now borrowing at unprecedented rates to plug the gap left by our foreign payments deficit, which may be as high as £130bn this year.

Our problem is that for decades now, the UK has had no exchange rate policy. The value of the pound has been left to market forces, which have driven it up to unsustainable levels as we have allowed ourselves to borrow and to sell off assets like no other country in the world. The result, as most manufacturing has become unprofitable, is that industry has been starved of talent, investment has slumped, we have not got enough to sell abroad to pay for our imports, and we are getting deeper and deeper into debt. We can’t go on like this. We need to get a grip on this situation before it is too late, and implement currency devaluation. This would make UK-manufactured goods cheaper on the foreign market, going some way to boosting our manufacturing industry and resolving our huge trade deficit. We need a government that realises that the value of the pound is the most important price in the economy. 

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