This week’s Brexit-related news illustrated well the Johnson government’s strategy in dealing with the reality of Brexit. On Thursday, the government announced of a new ‘world leading’ data policy based on ‘common sense not box ticking.’ After nearly two years of Johnson government, the phrases ‘common sense’ and ‘world-leading’ when appearing in an official announcement will set alarm bells ringing for many of us. As is often the case, substantively the announcement was so vague that it had experts and practitioners guessing whether that means the UK government is planning to diverge from the EU’s General Data Protection Regulation (GDPR) or not. If it were to diverge from the GDPR, it may very well constitute another case of the UK government exercising its ‘sovereignty’ for the sake of it, while disregarding the predictable effect of increasing red tape and costs for firms. Meanwhile, the government continuous to stubbornly refuse to give ground on short-term visas for lorry drivers despite mounting industry pressure. Conversely, also this week, the UK government gave in to industry pressure to delay the introduction of the new UKCA quality mark – which duplicates the EU’s CE certification without serving any obvious substantive purpose other than exercising sovereignty for the sake of it – for products sold in Britain by a further year to January 2023.
These news items reveal a by now familiar pattern of the Johnson government’s handling of Brexit reality: 1. Promising vague, but ‘world-leading’ regulatory changes based on ‘common sense’ (rather than technical expertise) and produce Brexit dividends at an unspecified time in the future; 2. Doggedly defending the chosen course of action against strong opposition from industry bodies, practitioners and experts while also ignoring the costs attached to the ideological choices; 3. Bowing to reality at the 11th hour by kicking the can down the road rather than solving the problem.
Yet, other news this week indicate that the government may slowly be running out of time before it starts delivering the first Brexit dividends. The food and labour shortages the country is experiencing are currently the most conspicuous indicator of this.
Shortages
Instances of labour, food, and shortages in other goods, have now become so numerous that the voices on social media dismissing them as ‘Remainer fantasies’ have – as far as I can tell – largely disappeared. Highly mediatised instances this week included McDonald’s announcement that it had ran out of milkshakes and warnings about persisting problems by Steve Murrells, CEO of the Co-operative Group. There is also a great deal of commentary and good summaries of the situation, e.g. this twitter thread by a food industry professional, or Chris Grey’s most recent Brexit & Beyond blog.
With the evidence undeniable and despite the ‘pingdemic’ over, Brexiteers continue to argue that Brexit is not the cause of these problems. Thus, while the Guardian cites farmers’ anxiety over staff shortages ahead of the harvesting season, pro-Brexit commentators see reporting on shortages as ‘Remainer hysteria.’ It is of course true that Brexit was not the only cause of the shortages. The pandemic and other factors related to the relatively good economic situation in some of the countries of origin of UK immigrant workers play a role in reducing the supply especially of relatively low-skilled workers. Yet, there can be no doubt that Brexit has made these shortages particularly bad, and the UK is particularly vulnerable to them.
The labour shortages especially in the haulage industry has also sparked off an interesting debate about the UK’s economic model and the role of immigration in it (a debate we clearly should have had at this level before the referendum). Thus, Sarah O’Connor’s recent column in the FT rightly points out that Brexit and changing immigration patterns are only one reason for the shortage in HGV drivers; the other one being the continuous decline over the past decades of working conditions in that sector, including stagnating pay and long hours. This has led to a situation where few British people would consider lorry driver as an attractive occupation. While we were in the EU the solution was to replace British drivers with people from countries with lower wage levels and possibly less choice. For some – such as John Redwood – the solution is therefore simple: Employers need to pay drivers more to make the job attractive to British workers.
Others – including people in the haulage industry – are sceptical that this would solve the issue in the short term. Some have also pointed out the inflationary effects increasing pay to attract British workers would have if applied not just to lorry drivers but other sectors of the economy. More generally, this debate between mobilising the domestic labour force and relying on immigration needs to be understood in the context of the British growth model.
What role for immigration in the British growth model?
The question of immigration has of course played a crucial role in the Brexit saga, but the Brexiteer narrative was rather inconsistent. Thus, as Chris Grey argued this week, ‘taking back control’ over our borders was sold to the people at the same time as a commitment to reduce immigration compared to the period of EU membership and as an opportunity to create an immigration system that fulfils the needs of the UK economy. These are two incompatible goals. Indeed, as Alex Afonso and Camilla Devitt pointed out in an excellent blog already a few years ago, the conservative’s preference for low state intervention, liberal labour markets, and austerity all create a need for higher levels of immigration, which is incompatible with the nativist Brexiteers’ preference for ‘wanting their country back.’
The Brexiteer story about immigration was a mixture of the age-old argument in nationalist discourse that every job going to a foreign worker meant one job lost for a British worker and – equally old – arguments about the impact of immigration on British identity and culture. Brexiteer arguments around immigration were thus mainly framed in terms of supply rather than demand. For instance, the VoteLeave web page states ‘Nearly 2 million people came to the UK from the EU over the last ten years. Imagine what it will be like in future decades when new, poorer countries join.’ The underlying assumption was that closing the borders to this inflow of immigrants was unproblematic. Immigration – in typical Brexiteer fashion – was seen as a case of ‘they need us more than we need them.’
The UK’s economy is greatly reliant on immigration for at least three reasons: Firstly, in spite of the focus on trade and exports in Brexit debates, the UK’s ‘growth model’ is not an export-led one, but one driven by domestic demand for consumer goods and services. Compared to countries like Germany, Sweden, or Switzerland, exports make up a much smaller part of GDP.
At the same time, the UK also has a fairly deregulated labour market and weak trade unions, which has meant that employers have far more bargaining power than workers. This explains relatively low – and stagnating – wages, which depress domestic demand. One way to prop up demand in such a situation is through increasing levels of private household debt, which before the Global Financial Crisis of 2008 was partly financed through re-mortgaging of real estate. Since the Crisis a second way of increasing domestic demand in the face of stagnating real wages was to increase the size of the population, which – in the face of low birth-rates – has to happen through immigration.
Secondly, the liberal labour market model also explains very limited employer investment in the training of their workforce, because of the risk of ‘poaching’ of trained workers by competitors. It has indeed been a long-standing dilemma of so-called ‘Liberal Market Economies’ (LMEs), like the UK and the US, that companies require skilled workers but are unwilling to provide training themselves, fearing that others may freeride on their investment. Many economies in Continental Europe overcome this dilemma thanks to coordination and cooperation and the provision of collective training schemes with the involvement of business associations and trade unions. Attempts by the UK government - including the current one, to solve this collective action problem have so far largely failed, leading to a reliance on immigration of skilled workers instead.
Thirdly, the UK economy is also greatly reliant on immigrant workers due to more general pressures for cost containment not just in the private but also the public sectors. In particular, fiscal austerity has heightened pressure in the health and care sectors to contain costs, which can most easily be done by filling vacancies with people form lower wage countries. In the private sector, similar pressure exist due to the fact that – with the exception of high-end business services and pockets of high quality manufacturing – most of the UK economy relies on consumer services where cost competition – rather than competition on quality – is crucial and keeping costs low is hence essential.
These factors have limited both the ability and the willingness of producers to invest in skills and pay higher wages and increased demand for immigrants. That ‘demand side’ of immigration largely ignored or downplayed by Brexiteers. The replacement of free movement of people with a points based system that privileges skilled immigrants over low-skilled ones, for instance shows that Brexiteers and the government do either not understand or not care about the needs of the British economy. Indeed, the current shortages in low skilled workers show that the new system largely missed the point.
After years of Brexiteers dominating the discourse on immigrants, we are now learning the hard way that we need them as much as they need us – or more. This realisation seems to slowly sink in with the British public: A recent poll shows that 47% of respondents supported the government relaxing immigration rules for drivers coming from the European Union, while only 21% oppose it.
Sadly, it also becomes increasingly apparent that this emerging realisation comes at a time where it has already become harder to convince Europeans to come and work in the UK. Beyond the actual obstacles wilfully erected by the UK government for people willing to work in the UK, it would appear that even Europeans who have obtained settled status and thus the right to continue working in the UK seem reluctant to return to the UK. The ‘hostile environment’ policy that successive Tory governments have created since 2010 means that the UK has slipped down the ranking of desirable countries to work in. Farmers for instance report the unwillingness of seasonal workers to return to work on UK farms, as they prefer working in other EU countries. In spite of the UK’s reliance on immigration, successive Tory governments over the past decade have done everything to make the UK less competitive in attracting the workers it needs.
What is the alternative?
In the absence of sufficient immigration, UK businesses will have to compete for a shrinking domestic workforce. That may well mean increasing wages, which in turn may be a welcome effect, as it may halt the continuous decline in the labour share of national income since the 1980s. However, if wage increases do not go together with increasing productivity or if they are passed on to consumers – rather than leading to a decline in the capital share of national income (through dividends and share buybacks) – that could mean inflationary pressures. Higher inflation may in turn wipe out any increase in workers’ purchasing power.
Of course, wages may not increase if demand for work is reduced, or the domestic workforce can be expanded. Reducing demand for labour is possible through increasing automation, but will do very little to provide Brits with decent jobs. Indeed, there is a distinct risk that reduced labour supply will lead to increasing automation and possibly jobless growth and hence another broken Brexit promise. Expanding the domestic work force, on the other hand, is being tried by other right-wing governments in Europe. Thus, the Orbán government in Hungary is using life-long income tax breaks and low interest rate credits to entice women to have at least four children. This seems like a logical complement to the Orbán government’s goal of zero immigration. I would not put it past the current UK government to soon turn to a similar policy. In the short term, however, the government seems to be toying with extreme ‘activation measures’ such as using inmates to fill the gaps in the labour market, which – besides ethical concerns – also raises questions about prisoners’ working condition and wages.
In short, while increasing salary levels in the UK would be desirable for many reasons, the crux of the matter is that moving away from the low productivity, low skill, low wage situation the UK has been in for decades, would require a fundamental change to the UK’s economic model. Yet, the policy changes necessary to achieve this – most notably more state intervention to promote employers’ commitment to training and skill formation – are hampered by the unsolvable dilemmas that the Brexit ideology gets entangled in as reality hits.
An impossible realism?
Several Brexit observers – including myself e.g. here – have recently noted some modest signs of realism in government’s handling of Brexit. Thus, Chris Grey notes ‘a little more realism about Brexit may be emerging’ and Rafael Behr sees ‘signs of reality penetrating government.’ Indeed, the Brexit ideology worked very well as long as it was sufficient to promise ‘sunlit uplands’ that could not be checked against reality. As the possibility of doing that – other than by saying ‘give it time’ – evaporates, Brexit ideology is coming under pressure. Yet, there may be severe limits to the amount of realism that the Brexit ideology can sustain without hopelessly becoming entangled in dilemmas that may block any attempt at realism in policy making.
One such dilemma concerns precisely immigration and the needs of the UK economy. This week Business Secretary Kwasi Kwarteng justified his refusal to add HGV drivers to the shortage occupation list by referring to the approaching end of the furlough scheme, which meant that ‘many UK-based workers now face an "uncertain future" and needed to find work.’ This statement does seem consistent with the philosophy he defended as one of the co-authors of Britannia unchained, which famously argued that Britons are lazy, and therefore may need the threat of an ‘uncertain future’ to be willing to do the jobs that immigrants did for us previously. However, this gloomy statement of an uncertain future seems at odds with the ‘sunlit uplands’ narrative used to sell Brexit to the very same people who now need to be scared into doing jobs they do not want to do. Moreover, it clearly does not show any sign of realism about the choices Britain now has to make (e.g. by changing its anti-immigration stance or getting serious about changing the UK’s economic structure e.g. through an appropriate industrial policy that Kwarteng ditched earlier in the year).
Kwarteng’s stance may soon become rather unpopular as the above-quoted poll indicates that found 47% of respondents preferred EU immigrants to driving lorries themselves. Yet, the government has heavily relied on the electoral support of the ‘vocal minority’ (probably partly represented in the 21% who oppose relaxing immigration rules for HGV drivers in the poll), which creates a dilemma that makes a more realistic approach to the issue of immigration unlikely.
Another dilemma standing in the way of realism concerns the financial industry’s hopes the government would remove caps on banker bonuses that the UK had to grudgingly accept while still member of the EU. Contrary to many expectations – encouraged by the Government’s ‘bonfire of regulation’ promises –, the government seems reluctant to remove these caps. Quite possibly this reluctance is explained by the fact that they may be perceived as contrary to the Government’s ‘levelling up’ agenda. Here, the Johnson government seems to be torn between its traditionally strong donor basis in the City of London and its new electoral base in the North of England. This could be made worse by a legal challenge to the Levelling Up policy brought by the Good Law Project, which the High Court agreed to hear this week. This legal challenge is based on robust scientific evidence that suggests that one of the Levelling Up funds – the so-called Town Funds – is disproportionately benefitting areas where Tories hold marginal Westminster seats. The GLP group argues that therefore the centre piece of the Levelling Up agenda is unlawful. If the challenge is upheld, - after Global Britain – another important pillar of the Johnson government’s plan for post-Brexit Britain would be severely damaged.
There are also signs that the recklessness with which Johnson has pursued his goal of ‘getting Brexit done’ may be catching up with him. The latest breach of ministerial code that was made public this week was the use of taxpayer money to finance Johnson’s byelection campaign trip to Hartlepool. According to the rules, the costs for the trip should have been shared between the conservative party and the public purse. The party’s tax returns reveal that they were entirely born by the taxpayer. It is unlikely that this incident in itself will do much to get Johnson into problems. However, it adds to an increasingly powerful narrative that the Johnson government applies ‘one rule for us, another for everyone else,’ which seems to be the one thing that voters hold against Johnson, slowly denting his popularity. Thus, the Frankensteinian monster of ‘populist Toryism’ already starts show signs of decay in face of Brexit reality.
What if chaos was the goal all along?
The way the government has dealt with recent challenges it is facing will seem to many observers as a series of major blunders caused by incompetence and lack of expertise and understanding of substantive policy issues. This explanation may go some way in explaining how cabinet members and ministers have behaved over the past two years (Raab’s handling of the Afghanistan crisis is a recent case in point).
Yet, there is a more sinister possible explanation that may apply to parts of the Brexit movement – namely that Brexit has been ‘project chaos’ from the start for some of them.
Many Brexiteers – Rees-Mogg probably most evidently – seem to adhere to a world view built on a brute individualism à la Ayn Rand. From this pseudo-Darwinian perspective, liberated from the shackles of society that hold them back, the strong and ‘talented’ will be able to excel and push the boundaries of human achievement. They therefore should be allowed to be ‘sovereign individuals’ – as William Rees-Mogg put it - with no responsibility towards society or others. Those who are not strong enough to compete in the brutal post-society world, will rightly be swept away by the forces of nature (or the market), making humankind stronger over all as a result.
These delusional views underestimate of course greatly how much we all – even the richest and most powerful – depend on others for a good life and greatly overestimate what is due to ‘talent’ and ‘merit’ as opposed to inherited privilege (a powerful critique of Ayn Rand’s and similar nonsensical pseudo-theories of individualism is Daryll Cunningham’s comic book on the Global Financial Crisis). Yet, they mirror at the personal what has become official policy in Brexit Britain, namely: ‘They need us more than we need them.’ The Rees-Mogg’s of this world do not acknowledge any debt to society and indeed seem to be wishing for a state of anarchic chaos where the strong thrive and the weak perish. For Alastair Campbell, Brexit can be seen as a tool in the strive of making this ideal reality.
There are days when I listen to, read, or watch the news in disbelief at the Johnson government’s incompetence and recklessness. Some of the actions seem too egregious to be explained by incompetence. In such moments, the thought that for a part of the Brexit elite chaos may not be a disaster, but a desirable outcome seems like a terrifying but not unrealistic possibility. Brexit may be a revolution that attempts to wreck everything we have without seeking to replace it with anything coherent. The Johnson government may be the perfect instrument to achieve that goal.