Brexit is a distracting sideshow to the problems of Britain’s failing state
Brexit Britain is an unreal place, and even more unreal in an election. It has its share of problems none of which Brexit can fix, because they are not what it thinks they are. What it treats as problems, aren’t, while the real problems, which it assumes to be strengths, grow bigger as they are ignored. Having comprehensively misdiagnosed itself, it treats its non-problems with remedies that are actually the cause of its real ones, turning them into proper problems too. It may be in the process of making itself democratically ungovernable.
For years Britain has lived not so much beyond its means as beyond the looking glass. What it sees in the mirror is a buccaneering freebooter whose entrepreneurs have only to be freed of pettifogging EU rules to plunder the world like Francis Drake and Walter Raleigh of old. It could hardly be more telling that the big British films of summer 2017 are Churchill and Dunkirk. The reality is a second-ranking financier-trader that provides neither the social protection of Northern Europe nor the low taxes of the US that its inhabitants aspire to. Britain’s emblematic institution is the NHS, a once bold experiment now neither bold nor innovative but still venerated, that struggles to provide a half-decent service despite the constraints and reforms that are constantly visited on it.
How did we get to this pass? The answer, thrown into sharp relief by the shock of Brexit, is that we willed it. The British sickness is iatrogenic, caused by the market reforms of the 1980s that had the opposite effects to those intended, and the ignoring of reforms in quite different areas might have put it on the right track.
Speaking a at a recent seminar at LSE, academic Dr Abby Innes noted an underlying parallel between Brexit and the 1979 election that brought Margaret Thatcher to power. Then as now, the major problem faced by the economy was seen not as deindustrialisation, the collapse of Bretton Woods, oil price rises or radical technological changes (1979), any more than globalisation, radical technological change or the backwash of the 2008 was most urgent in 2016. Rather, the overriding problem was a self-seeking bureaucratic state (or superstate in the case of Europe today) that supposedly paralyses growth and crods out Britain’s native entrepreneurial spirits.
Having accepted this diagnosis, all succeeding British governments, whether tacitly or overtly, have made it their central project over the last four decades to transform the nature of the state. This they have done by letting the market in, through privatisation, outsourcing, managerialism (New Public Management), agencification, quasi-markets in health and welfare, and abandoning any attempt at industrial and employment policy. At the same time, permissive legislation allowed companies to opt out of their previous obligations (career, full-time jobs, employability, proper pensions, living wage) in the name of competitiveness. Similar dispensations have allowed firms to pursue a race to the bottom in taxes, standards and regulation, displacing the fiscal burden on to consumption and those at the bottom of the social heap.
This extreme focus on the supply side has certainly transformed the character of the state – but the consequences have been far from those intended. As sole buyer of complex, hard-to-value services, often under inherently flawed payment-by-results regimes, governments have been taken to the cleaners by a private sector that has little incentive to innovate or improve because, as it is well aware, the buyer is comprehensively locked in (a monster case of moral hazard). A barrage of complaints and failures has triggered the spread of a ‘Kafkaesque’ (Innes’ term) regulatory state that is both intrusive and ineffective.
One glaring result is that private-sector service provision is neither low cost nor high quality. Academic research confirms anecdotal and subjective evidence: according to one study, over the last 30 years UK administrative costs have increased by 40 per cent in real terms with 30 per cent fewer civil servants, while public spending has doubled. Running costs have gone up fastest in the outsourced areas. At the same time, the volume of complaints, challenges and failures has soared.
This of course is the opposite of the ‘more for less’ that was promised. Unfortunately, the same is true in the private sector. In one of the hugest market failures in capitalist history, the wave of innovation, investment and job creation that was supposed to be triggered by government ‘getting out of the way’ simply didn’t happen. Instead, the focus of the economic system has switched 180 degrees from wealth creation to wealth extraction through pervasive financialisation at every level – first, by (ironically) crowding out, and increasingly coopting the proceeds of, the productive sectors, creating an economy which is unbalanced even by British standards; second, by financialising non-financial firms through a regime of shareholder value maximisation in which profits, often gained through cost and job cutting, are extracted in pay-offs for executives and short-term shareholders; and third, by using debt of all kinds, now at record levels, to draw individuals into the same corrupted system, leading to massive increases of systemic vulnerability in periods of both boom and bust.
But even this may not be the full extent of the self-inflicted damage. Pessimists argue that to ineffective public services and a predatory, rent-seeking private sector should now be added the failings of an incompetent state, progressively stripped over the years by state-hating governments of the capability to exercise its overarching governance role. The more authority is devolved to the private sector, the harder it becomes for governments to change unpopular or even failing policies, let alone start to rebuild the capability of central institutions to oversee themselves in the name of all citizens. The Brexit referendum, apparently launched without thought for the constitutional consequences, is just the most striking example of this learned witlessness, unthinkable elsewhere.
As Innes notes, Brexit is likely to expose what we should have been talking about all along: the crisis of a disintegrating British political economy whose woes have absolutely nothing to do with Europe. Brexit has no answer for soaring inequality, stagnating productivity, threadbare public services, nor the deep structural divide between those educated, mobile and confident enough to survive, if not prosper, with minimal or even failing state protection, and those with little hope of profiting from the emerging freelance contracting economy. Theresa May, like Donald Trump, is right to sense the social fracture, but shows no sign of understanding its nature or the extent of the changes needed to bridge it. Beside these, Brexit is a distracting sideshow.