Both sides of the EU referendum debate made a mockery of public discourse and intelligent political engagement. They relied on sloganeering, character assassination and the inflating of ridiculous forecasts to suggest either utopia or dystopia. Even now, two months after the vote to leave, these petty debates rage on, with both sides accused of lying through their teeth (and rightfully so).
Yet the great irony is that the issues that came about due to this referendum and the ridiculous forecasts presented by both sides were neither correct nor even matter. The major effect of the referendum have been to show that Brexit really doesn’t matter in any particular sense, due to the fact that the major economic questions facing the UK aren’t directly related to our membership (or lack thereof) of the European Union. Those major questions have been skirted round not because they’re unimportant but precisely because the elites of both campaigns have no answers to them.
Looking at the current UK economy, three major areas come out. The productivity puzzle which feeds into the anaemic wage growth and major issues of underemployment; the twin issues of asset bubbles and increasing private indebtedness; and the dynamics of economic distribution and redistribution.
The UK currently has a massive productivity problem, with productivity growth continually lowering and the gap widening despite consistently rising employment levels. In effect what we can see playing out is the lowering of the economy to lower-paid sectors due to low firm growth and expansion, and the major lack of training and skills available on the British labour market. Most of these problems originate not from the EU (although some EU regulations have discouraged training) but from UK governments’ policies over the past two decades. The minimising of training and skill development in favour of educational policy and university-level qualifications (exemplified by Blair’s “education, education, education”) has led to the inflating of costs for university education, and a dearth in skills when compared to countries like Germany. The other major policy development that has encouraged this productivity puzzle is the introduction of the minimum wage, which has hit unskilled and young workers particularly hard since 2001. Again, this has discouraged on-the-job training and led to labour-labour substitution, with young workers being replaced by older, more experienced employees. It has also helped create poor firm growth and expansion in the UK economy, with consolidation in low-skill sectors in particular.
While Brexit may have a small, exacerbating, negative effect on inflation or wage growth, the fundamental origins of the problem can be found in government policy and the institutions of the state. With the minimum wage, variable skill levels in different regions have been ignored, leading to the increasing concentration of new jobs in the South East of England for those of low skill, as well as increasing underemployment in the overall labour market, with one in six overqualified and another one in six undereducated.
Another major issue facing the UK economy is the increasing inflation of asset and housing prices, creating an acute housing crisis in London as well as rising prices across the UK generally. The origins of these issues again do not come from the EU or its related governance structures, but from international and national regulatory agencies and the existence of a fiat money banking system. Much of current UK economic growth has relied on consumer spending, and with it consumer credit instruments such as credit cards and mortgages. As well as this, banks and their capital (much of it injected via quantitative easing) have been increasingly directing investment toward housing and assets. In an economy with pathetic growth, major productivity issues and high levels of risk, banks are taking the safe option of inflating current assets and relying on ever-increasing land values. In other words, its bubble finance once again.
Such issues come down to the governance structures surrounding banking. The Basel Accords have recommendations on risk ratios which suggest that investment in housing and land by individual banks is the safest option for guaranteed returns. However, at the systemic level such recommendations led to the financial crisis, and to the increasing reliance on consumer, housing and national debt to fund and fuel economic growth. Further than that, the fundamental premise of banking based on fractional reserves and fiat money, with massive government guarantees in the form of deposit insurance, capital injection and bailouts, creates a radically unstable system upon which to base an international economy. This artificial credit creation funnels into land speculation based bubbles, creating the geo-Austrian business cycle. Brexit has done nothing to even effect such wide-ranging issues.
The third major problem is intrinsically linked to the previous two. The distribution of economic gains in the UK is increasingly leading to societal discord. In fact such issues played out in the EU referendum, easily exploited by both campaigns. While employment figures are relatively positive, wage growth is not. Only in the last two years has there been any move toward positive growth, and even then this does not keep up when compared with housing prices and rents, as well as other elements to the cost of living.
The cost of living crisis has been a result of government and the institutions of the state. The regulatory systems that surround the British economy, from entry barriers through licensing to the inability to attain capital due to the monopolisation of banking, necessitate the monopolisation of the economy. The power is in the hands of particular employers. Labour markets are made unfree, and production and distribution are increasingly concentrated in smaller groups. Entrepreneurial activity is stunted, requiring the widespread acceptance of low pay and wage labour. Banks through regulatory apparatuses push investment into land and housing, raising house prices and rents and forcing individuals to take on more debt to afford mortgages and consumption patterns. A form of privatised Keynesianism is developed. EU governance, while not helping the situation, has played a secondary role to that of British governments.
To correct such major statist interventions requires a radical laissez faire program of free banking, where multiple currencies with multiple risk ratios, inflationary/deflationary tendencies and banking regimes, are able to develop and thrive. Capital can flow into new entrepreneurial ventures and new forms of firm ownership and control. Such proposals already exist. There is a need for truly free labour markets with a minimisation of monopolistic tendencies amongst employers. Training needs to proliferate, and the minimum wage needs to be decentralised for regional variation.
Brexit, whether you supported leaving or remaining, makes no tangible difference to these reforms. Instead, all such debates do is foster the belief that we need only tinker with our current politico-economic system to correct its flaws. Brexit, and the discourses and debates that came with it, still don’t matter even two months on. Fundamental reforms and changes are needed for a truly dynamic, free market economy with a proper distribution of gains and wealth, and these won’t come from the EU or from outside of the EU. Without these reforms, we simply repeat the mistakes of the past.