‘Brexit Day’ – British capitalism enters stormy waters

Anti Brexit protest at Westminster (Image: Creative Commons)

Tory Prime Minister, Boris Johnson, elated by his election victory and refreshed from his Caribbean holiday, now faces, in the words of a newspaper journalist, a long-postponed “rendezvous with reality”.

Having secured a predictable majority for his Brexit Withdrawal Bill, and flattered by Tory courtiers who can see no further than the ends of their noses, he seems to have spent much of the time since his return trying unsuccessfully to encourage fundraising for Big Ben to ‘bong’ on 31 January when the United Kingdom exits the EU.

Having a substantial parliamentary majority is one thing, but this will not be a tranquil year for the Tories. Intractable crises continue to mount in the Middle East and international geopolitical relations between competing nation states and regional economic blocs are becoming more acute. This is despite the recent first phase of the largely illusory partial trade ‘deal’ concocted between the US and China.

Kristalina Georgieva, the new head of the International Monetary Fund, has warned that the global economy faces a multitude of potential risks, driven especially by inequality and instability in the financial sector.

She reserves particular criticism for the UK: “…the top 10% now control nearly as much wealth as the bottom 50%…in some ways, this troubling trend is reminiscent of the early part of the twentieth century, when the twin forces of technology and integration led to the first Gilded Age, ‘the roaring twenties’, and, ultimately, financial disaster.”

UK economy and austerity

In 2019, the British economy is expected to have grown by just 1%, the weakest expansion outside of a recession for 60 years. In the last quarter, economic growth came to a virtual standstill, paralysed by uncertainty around Brexit and the continual stagnation in the dominant services sector. This accounts for 80% of the economy and failed to grow for the third consecutive month.

Business investment has stagnated since 2017, leaving consumption growth to fuel the economy. Much of this has been funded by a historically low household saving ratio. Put simply, cheap credit and mounting personal debt is driving consumption, but in the medium term, this is as unsustainable as attempting to motor smoothly with four flat tyres.

Recession threat

The Bank of England has previously warned that there is a one-in-three chance of the UK plunging into recession this year. In the event of a fresh crisis, the value of financial assets might fall sharply, abruptly puncturing the present complacency of stock market traders and financiers who – despite the heightened and growing levels of global policy uncertainty – still lull themselves with the delusion that the 2007-2009 financial crash was a one-off.

The sobering news that Christmas trading on the high street was exceptionally bleak, with retailers experiencing the worst year for sales for 25 years, has prompted calls for another interest rate cut in an attempt to stimulate consumer spending and business investment. If interest rates are reduced again to 0.5%, they will be back to where they were in 2013, signifying an economy dependent on perpetual life support.

Flagship high street department store, John Lewis, has reported that winter seasonal sales are down 2%, issuing warnings that staff bonuses are in doubt.

Other workers aren’t just at risk of seeing bonuses evaporate but are losing their jobs. 2,800 Asda workers are the latest to be told they face probable redundancy.

This bitter pill comes after the US-owned food retailer engineered new contracts at gunpoint for its UK workforce, cutting paid breaks and extra payments for working most bank holidays and some night-shifts.

The British economy has never recovered fully from the ‘Great Recession’ of 2007-2009, and is incapable of doing so, given the deep structural weaknesses that have characterised it for decades. Already overly dependent upon the financial sector, the last crash saw the biggest collapse in productive forces for 80 years.

Extreme poverty can now be found in shop doorways in every town and city in Britain, as the scar of homelessness rises exponentially. Continuing austerity has led to families in the lowest 25% income bracket, who spend a greater proportion of their income on essentials, cutting back on household spending by a staggering £61 a week.

Under the Tories’ watch, wages have fallen by £32 a week on average, while benefit levels, made more and more inaccessible by the introduction of the hated Universal Credit benefits system, have been shredded to the bone. Jobseeker’s Allowance is set to reach its lowest value ever this year, at 14% of average weekly pay, a fall of 5% since 2009-2010.

A recent shaming report has revealed that 5,000 chronically ill and disabled people have died before being reimbursed for a government error under Ian Duncan Smith’s vicious time at the helm of the Department for Work and Pensions. Another 112,000 have had to wait several years for wrongly assessed back payments.

This is just the tip of a very big iceberg. The callous indifference of the British ruling class was eloquently underlined in the New Year Honours List when the notorious welfare cutting, right wing Tory MP, Duncan Smith was recognised with a knighthood rather than the P45 (unemployment form) which his performance merited.

The quagmire of a capitalist Brexit

The Institute of Fiscal Studies has recently shared the Socialist Party’s view that winning the general election was ‘the easy bit’ for the Tories. The Economist journal has chimed in that Johnson may look like a strong leader, but that the forthcoming negotiations with the EU will quickly expose this myth.

Currently, 49% of UK trade is with the EU bloc, more than three times as much as with America. Another 11% of trade is with other countries that already have reciprocal trading agreements with the EU. This translates into around 3.3 million UK jobs.

Exiting the EU will not be a straightforward process, even with the withdrawal agreement having passed successfully through Parliament.

Translating “Get Brexit Done” into successful negotiations that protect the UK’s current EU trading agreements; unravelling the Gordian knot of Northern Ireland’s proposed new relationship with the EU; and forging new bespoke trade deals with imperialist rivals like the US, will be revealed to be very complicated processes.

Decisive sections of the British capitalist class remain sceptical of, or continue to oppose outright the hard-line Brexit strategy, and are wary of Johnson’s ability to secure deals that will protect their interests.

An estimated 42.6% of the UK’s total foreign investment comes from the EU, and its attractiveness to foreign investors is closely tied to the ability of multinational companies based in the UK to be part of global supply chains.

Meanwhile, the US invests over $750 billion in the UK annually, mainly in the finance sector.  These companies use the UK as a gateway to free trade with the EU, which is now imperilled.

A leaked government study estimates that even if a mutually beneficial trade agreement is arrived at with the US, it would only add 0.3%, at most, to UK economic output. Similar deals with China, India, Australia, the Gulf countries and the nations of Southeast Asia, would add, in total, possibly a further 0.1% to 0.4% of GDP.

This, moreover, assumes best-case scenarios and seamless bilateral or multilateral agreements. Yet, it is hardly a path to the UK’s revival as a major economic player in an increasingly fracturing international geo-political landscape.

Far more likely are long drawn-out negotiations ending in a stalemate, and a continual pressing by imperialist rivals for the UK to further liberalise its economy and turn the City of London into a new ‘Singapore-on-Thames’.

EU comprehensive deal?

The incoming European Commission President, Ursula von der Leyen, has already warned Johnson that it will be impossible to reach a comprehensive trade deal by the end of 2020, as he insistently demands, and has now enshrined in the withdrawal agreement as a non-negotiable red line.

The EU withdrawal transition period is scheduled to last until 31 December, when the UK is committed to formally exiting, either with a binding trade deal with the other 27 countries, or with a departure that will require the British government to begin trading with World Trade Organisation (WTO) rules.

For the next 11 months, the UK will continue to follow all the EU’s rules and regulations, will continue as a member of the single market and the customs union, and permit the continual free movement of people.

Brexit has already dampened business growth for companies that trade in Europe. The manufacturing sector, particularly cars, aerospace, computers, electronics and pharmaceuticals are all waiting anxiously to assess what the impact of trade talks will have on their investment and future access to the EU market.

The Tories have already announced, however, ahead of any substantive talks, that after 31 December they will not be bound by the current EU legislation on workers’ rights and protections, irrespective of whether they partially or completely incorporate other EU strictures into new domestic legislation.

The discussions around trade will be extremely thorny, seeking to reach bilateral agreements on law enforcement, data sharing and security, aviation standards, access to fishing waters, energy supplies, alignment with EU rules on state aid to industry and the licensing and regulation of medicines.

Incredibly, Chancellor Sajid Javid, ahead of negotiations, has now warned business there will be no guaranteed UK-EU regulation-alignment deals, which, in essence, would amount to the death knell for a frictionless trade agreement. This provocative stance has stunned big business, which now fears the increasing possibility of the UK crashing out in a hard-Brexit departure.

With the spectre of a more generalised economic slowdown on the agenda and even another recession looming, which can severely affect an already weakened world capitalist order, Javid’s stance, if that continues to summarise the Tory approach, means that a successful completion of a comprehensive tariff-free, quota-free deal in such a restricted timeframe is in severe doubt.

One of the most crucial issues is the role of the UK banking sector. Failure to agree a treaty would lead to British banks losing the automatic right to operate in all member countries. Any single or a number of these issues can become a minefield.

The City earns about £205 billion a year from EU demand for financial services. By April 2019, banks had transferred more than $1 trillion out of Britain. The EU is refusing to offer London a bespoke deal for financial services, as Amsterdam, Frankfurt, and Paris compete for larger shares of this lucrative market.

WTO and chlorinated chicken

Although, in theory, failure to agree a trade deal might not see the EU slap high tariffs on the UK in the manner that currently applies with trade between Brussels and Washington, Tory intransigence could see steep tariffs, non-tariffs, and quotas imposed in quite a short time frame. According to a 2018 government report, having to trade under WTO rules could lead to GDP being between 4.9% and 6.7%, lower than maintaining open trade borders with the EU.

A complicated question will be ‘freedom of movement’. The Tories, while conceding the right of residence for current EU nationals living in Britain, have made clear that the doors will be slammed shut on low-skilled workers arriving from Europe after December.

This has led to a storm of protest from employers whose profits rely on using unorganised, migrant workers.

In a possible concession, Johnson has said he’ll scrap the new £30,000 minimum salary threshold on migrant workers, despite the grumblings of many Eurosceptic Tory MPs.

The US will not be the new trade sanctuary for British capitalism. Any deals will be on Trump’s terms, with chlorinated chicken, Britain’s political subservience to US political interests in the Middle East and elsewhere, and a suspension of Chinese Huawei 5G technology on the menu just for starters.

Explosive class struggles

In or out of the capitalist EU, the real reasons for poverty, joblessness, austerity, and insecurity lie in the private profit system – capitalism.

The Tory government, despite its large majority, is not a stable one, nor necessarily a long-lasting one. Huge struggles are likely to explode as workers fightback against plunging living standards, rising prices and joblessness.

The future months and years will be stormy with many new opportunities arising for reaching millions with a socialist alternative to the economics of the madhouse that is capitalism in the 21st century. Then a real socialist Europe, based on international workers’ solidarity, can be constructed.



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January 2020