Economies grow for one reason: the gains from trade. You have something I want, and I something you want, so we exchange and are both better off. Everything else: improving productivity, inventing new technology, opening up new markets, building infrastructure, educating workers, raising capital is just a means for increasing those gains.
These days the biggest gains are made across borders. Markets for products, labour and capital are global, but they only work when governments let them. Now voters across the West, from Trump on the American right, to German leftists opposed to TTIP want the barriers to go back up. But it’s Britain where the economic death wish is strongest.
When the Social Market Foundation asked British voters what their priorities were, cutting immigration to below 100,000 60% supported it, and just 13% opposed. Higher taxes on the rich, a mansion tax on expensive houses and a ban on zero hours contracts also won strong support.
British voters have turned against economic liberalism for two reasons: they think globalisation has failed, even though it’s actually been a huge success; and they don’t trust international institutions to act fairly to govern the global economy.
They think inequality has increased, when it has in fact been stable since 1990s, that 60% of total wealth is held by the top 1% (it’s in fact 23%), that unemployment three times as high as it really is, and that twice as many people living in Britain were born abroad than is actually the case.
They’re not irrational so much as wilfully ignorant: if a quarter of the population were born abroad, at the same time as unemployment was running at 24% (what people thought in 2013) it wouldn’t be unreasonable to think immigration was causing problems. If the top 1% really did hold a share of wealth similar to that in Russia, radical redistribution might be justified. The information is out there and available to anybody with an internet connection, but people prefer to have their prejudices reinforced. They’re choosing not to find out about reality, and then demand politicians act according to their unfounded beliefs. And wilful ignorance isn’t confined to people with little education. Far worse, highly educated people are also perfectly happy to discard facts in favour of prejudice.
The Leave campaign homed in on the second with their slogan: take control. It promised to give British institutions power over what happens in Britain. If not an outright lie, this central slogan was a flagrant exaggeration. Leaving the EU can bring formal powers back to the UK, but it doesn’t change the fact that there are more than 200 countries in the world and some way of supplying the stability the modern economy needs to conduct business has to be found.
British firms need access to labour and the assurance that their products will be allowed in to foreign markets. Foreign investors need protection from the feelings of the British public (who would have blocked Kraft’s takeover of Cadbury’s if they’d had their way). There have to be international rules, and now that there’s no British Empire any more, they will restrict the freedom of the British electorate to satisfy its desires, restrictions that British voters are less and less prepared to accept.
Subordinating everything to the promise of bringing net migration down to below 100,000 a year will make Brexit negotiations almost impossible, and deprive industries and public services of labour when the economy is essentially at full employment. Insisting on an industrial strategy, when it has always failed in Britain in the past, and when the economy is now based on services, is another victory for political emotion over economic reasoning. Ultra-strict planning laws produce expensive and low-quality housing, but won’t be changed. The British tax system, once comparatively simple, is now so baroque that there’s even a point at which the marginal income tax rate is infinite. Economic policy has been sacrificed to politics as though Britain was an emerging market.
Labour and Tory governments won cheap popularity by attacking global economic institutions, while running an economy that depends on the gains from trade they made possible. The Brexit referendum made the contradiction impossible to ignore. Either prosperity or democracy will lose, and if democracy has decayed into pandering to a wilfully ignorant populace, would a more technocratic government be such a bad thing?
