Brexit as Symptom

✑ CHRIS DILLOW` ╱ ± 5 minutes
We Marxists stress deeper-rooted failings of capitalism.

There is, I think, a pretty clear line from capitalist stagnation to the 2008 crisis, to austerity and hence to Brexit.

Chris Dillow was born in Leicester in 1963. He went to Wyggeston Boys School (a grammar), Corpus Christi College, Oxford, and the University of Manchester. He then drifted into the City for a few years before joining the Investors Chronicle, though he strenuously denies accusations that he's a journalist. Chris lives alone in Belsize Park, and blogs at Stumbling and Mumbling. On twitter: @CJFDillow.

Simon says that Brexit is a “symptom of a deeper malaise” – of a dysfunctional political-media system that gave us economically illiterate austerity.

I agree that austerity caused Brexit, not least because as Ben Friedman has shown , stagnant incomes make people more hostile to immigrants. But I wonder: is there an even deeper malaise here – namely, a fundamental failure of capitalism?

What I mean is that capitalism was faltering even before the banking crisis. For example:
  • The real income of the median UK household, after housing costs, rose only 1.6% per year in the five years to 2007, well down from the 2.4% growth of the previous thirty. This wasn’t merely because growth was captured by the rich: GDP per head in that period grew only 2.1% per year, which was weak by the standards of previous expansions.
  • Business investment accounted for less than 10% of UK GDP in the mid-00s, compared to over 12% in the late 90s. This reflected what Ben Bernanke in 2005 called a “dearth of investment opportunities” in western economies.
  • Real bond yields were trending downwards from the early 90s. Whether this reflected a savings glut , investment dearth or shortage of safe assets is in a sense beside the point. The downtrend betokened a loss of economic dynamism: a lack of belief in growth caused investors to prefer safer assets.

These signs of stagnation might have a common cause – that, as Andrew Kliman ( big pdf ) and Michael Roberts have shown , rates of profit in many developed economies had been falling since the 60s. That sapped capitalists’ motive to invest in productive assets, thus depressing growth.

All this is consistent with Ravi Jagannathan’s claim (pdf) that the 2008 crisis was “the symptom not the disease.” It was a bust without a preceding boom.
Rates of profit in many developed economies had been falling since the 60s.
To see the point, imagine that (contrary to reality) there had been an abundance of highly profitable business investment projects in western economies in the 00s. The “glut” of savings from Asian economies would then have financed these rather than house price inflation. We’d have seen genuine real growth rather than bubbles and malinvestments. We’d not then have had the crisis.

And as Nick Crafts says , without the crisis we’d not have had austerity and hence Brexit. This isn’t because the crisis necessitated austerity. It’s because the recession weakened support for the Labour government and the post-crisis rise in government debt allowed the Tories and the media to exploit illiterate debt phobia.

There is, I think, a pretty clear line from capitalist stagnation to the 2008 crisis, to austerity and hence to Brexit.

My dispute with Simon echoes an old one between Marxists and social democrats. Whereas the latter tend to emphasize the role of bad policy, we Marxists stress deeper-rooted failings of capitalism.

The disagreement here is, I suspect, one of emphasis. Where Simon and I agree is that Brexit is indeed a symptom. In this sense, there’s a sharp difference between us and Tory Remainers such as Anna Soubry who supported austerity and Lib Dems and other centrist Remainers who acquiesced in it. They seem to think Brexit happened because voters suffered a fit of irrationality to which they were immune. This is silly narcissism – a morbid symptom of what we get when one’s political opinions are not anchored in social science.

Top image: Banksy does Brexit. From: flickr


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