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The five ways the left can win back the Leavers

People voted Leave for many different reasons, but we can still identify key concerns that deserve a progressive response.

The liberal left has gone through various forms of disbelief since the Brexit vote. (I include myself in this.)

First, we thought, let’s try to have another vote. Second, let’s try to subvert the outcome of the first vote through parliament. Third, let’s hope enough Leave voters wake up feeling remorseful, see the light and switch sides, especially when they realise how unattractive Britain will become. Fourth, let’s try to belittle the working-class people who voted for Brexit by suggesting: a) they are racist; b) we will all go to Stoke-on-Trent to listen to what they have to say (because being listened to by us will make them feel better); c) they fell for transparent lies because they are a bit gullible; d) we will give them some more money through state transfers, because if they had more money, they would be happier – that is what a new, fairer political settlement amounts to.

Such responses seem to underestimate the scale of the challenge. People voted Leave for many different reasons. At one end were people who are clearly racist; at the other were utopian liberal internationalists. For much of the working class, however, I think that it came down to five things. These are made for the left to respond to – if only we could work out how to bridge the gap between metropolitan, cosmopolitan progressives and working-class voters who believe in solidarity and community.

 

1. This was a vote for meaning, rather than money

The Remain campaign was all about money and how much people would lose if Britain exited the EU. The Leave campaign was all about restoring a semblance of meaning to people’s lives, despite not having much money. As a vote for something more than money – for pride, belonging, community, identity, a sense of “home” – it was a rejection of the market. We might not much like some elements of this “vote for meaning”, but it was a vote with the heart, rather than the wallet. The result was a reminder that people need something in their lives that feels more important than money – especially, perhaps, when they have little prospect of having much. Above all, they need a sense of narrative.

 

2. It was a vote for democratic decision-making over opaque and distant power

The European Union has a distant, opaque and ineffective decision-making process. Understandably, people want decisions made closer to home. Read Martin Wolf in the Financial Times or the Harvard-based economist Dani Rodrik: globalisation, democracy and the nation state are incompatible.

Nationalism may be the price that we have to pay for a sense of democratic control over our lives. This was a vote to reassert nation state democracy in a time of global markets. That may be romantic and naive but it was a vote for democracy over global forces. There is nothing wrong with people wanting control over their lives: that is what social democracy was supposed to provide. Jacqueline Rose explored this subject in her book States of Fantasy, which examines how politics is driven by a shared public fantasy. (US political life is devoted to the pursuit of the “American Dream”, not the “American Reality”. The vote on 23 June was for a kind of “British Dream” – though it may yet turn out to be a nightmare.)

 

3. This is high-energy politics

People have become more engaged in political debate, and it truly matters to them for the first time in years. Impassioned conversations are being had everywhere, between all sorts of people, about what kind of society we should be and what a good society is. The long-established political systems are in decline. Politics is seen as procedural, distant and untrustworthy. Yet all voters feel that they have something at stake in the outcome, something they want to defend or stand up for.

The left-wing philosopher Roberto Mangabeira Unger called for a “high-energy” politics to take over from the exhausted forms of representative democracy in his book What Should the Left Propose? – and this is it. Having more people politically engaged should be good for progressives, because they believe in the power of democratic politics to shape markets.

 

4. Objects of public love

National symbols are still the most potent objects of public love. North of the border, the Scottish National Party seems to have fashioned a forward-looking civic nationalism. If only England, led by the left, could do something similar through localism – real devolution of power to cities, towns, wards and neighbourhoods – and a new civic activism.

Most leaders of social-democratic politics are schooled in the tradition of John Rawls, which reduces the search for a fair society to a set of equations. A cheque in the post has become a substitute for human solidarity. The US legal theorist Bonnie Honig argues that as a result proceduralism – politics as a process of allocating rights and responsibilities, rather than a forum for substantive discussions about what makes for a good life or society – has replaced real engagement.

Honig’s antidote to proceduralism is a politics that is tumultuous, unpredictable, contingent and fragile, driven by passions and fantasies. She is more interested in a politics that destabilises existing procedures and leads to new forms of political power. Welcome to the Brexit world. Suck it up. Learn to adapt to it.

According to Honig, part of the answer is the creation and defence of “objects of public love”, which are the icons of our common life. These help make us a society, because we see ourselves reflected in them. In 2012, a public campaign prevented the privatisation of British forests, which became objects of public love. The 2012 London Olympics were and remain an object of public love for people in the UK, although they now feel more like a long-lost holiday romance (one involving Boris Johnson). The NHS is an object of public affection and loyalty, if not love.

Politics across Europe is now driven by a sense of loss and so such objects are more about the past than the future. If the left wants to win back the Leavers, it needs to create more civic shared objects of public love that can be draped in the Union Jack and earn our loyalty, but which also embody the values of tolerance, openness, solidarity and fairness.

A distant, top-down state of a social-democratic kind cannot create these shared objects. The left would have to embrace the decentralisation of power and expressions of the good life and relinquish statism. It is worth thinking what this would mean, for example, for the funding of arts and culture.

 

5. This was a vote for a version of equality

People who think that they have little to gain from globalisation voted for a new Brexit settlement in which those who already gain would find it harder to do so. The beneficiaries of a globalised, network economy will struggle now to do as well as they once did. That they will find life harder and the economy may grow less quickly matters little to people in industrial towns left stranded and with no growth in their incomes for two decades. House prices in London will fall. High earners may flee. The creative industries will suffer.

The truth is that, for a while now, growth has failed to deliver its moral dividend alongside its economic one because the increased prosperity has not been shared fairly. It should be no surprise that those who have spent years feeling overlooked and neglected by both the market and politics should now feel such resentment and so little sympathy for people with wealth, who might feel, for the first time, that the world is slipping away from them. On the contrary, it might be cause for celebration and satisfaction.

In recent times, economic growth has not delivered many dividends at the bottom of the income pile. Will slower growth after Brexit make much difference? The country may be poorer but it could become less unequal. It will almost certainly become uglier.

***

The postwar settlement was founded on Keynesian principles, a welfare state and an industrial, fully employed economy. The Thatcherite settlement was about the individual, the private and the market taking precedence over the collective, the public and the state. It was complex because it combined a belief in the strong state and the open market, and yet also a national purpose. We now stand on the verge of a Brexit settlement that will redress the relationships between Britain and Europe, between the white working class and immigrants, and between the cosmopolitan and urban and the communal and provincial.

Seen from this perspective, there should be a lot for the left to work with in the aftermath of the Brexit vote. People want more meaning in their lives. They want more democracy. They want an engaged, high-energy politics. They will rally around objects of public love if they are attractive and meaningful. They want greater equality and more of a sense of community. They want lives that have a narrative, and they want national pride to be a part of that. They want a sense that they can exert some control over what is going on around them.

This is everything that the left should stand for. We just need to show how all of this is made more possible in a UK that is a part of Europe and, like countries such as Norway and Canada, unafraid of the free flows of people, trade and ideas that also make us rich, diverse and exciting.

Charles Leadbeater is an associate of the Centre for London and the co-author of “Hollow Promise: How London Fails People on Modest Incomes and What Should Be Done About It”

This article first appeared in the 07 July 2016 issue of the New Statesman, The Brexit bunglers

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?