The long read: Labour leavers and remainers must make common cause against raw capitalism of the hard-right

The Conservative government clings to office. It has no strategic view of the country’s future. It appears incapable of defending the national interest in the Brexit negotiations. In opposition, Labour meanders, pushed one way by those who want to reverse Brexit, pulled the other by its Leave voting supporters. It hovers in the polls a point or two above or below the Conservatives. Neither party is admired or trusted by a majority of the electorate. People are beginning to feel that the EU is humiliating the country. Brexit is a cathartic moment in the history of our liberal democracy.

On the December 14 and 15 the European Council will meet and decide on whether Britain has made “sufficient progress” in its negotiations to leave the EU.

The EU Council guidelines on the Brexit negotiations are based on a “phased approach”. This requires sufficient progress on the conditions of Britain’s withdrawal before discussions on the future British-EU partnership and trading relationship can begin. These conditions are the protection of EU citizens in Britain, the future of the Good Friday Agreement, and the financial settlement.

There is no technical specification defining “sufficient progress”. Politics determines the measure of it and the EU has been using its phased approach to assert control over the negotiations. The EU wants Britain’s acquiescence to the existing institutional arrangements. The reaction of the right-wing press is hostility, while liberal left opinion is acquiescent. It took a former European Court judge Franklin Dehousse to point out why this obstructive approach by the EU is flawed and will backfire on it.

Brexit is about power. The EU is playing power politics while the government and opposition quibble over what kind of Brexit each want. The inevitable stalling of negotiations and the spectre of a “no deal” outcome have done their work and intensified the febrile atmosphere in Westminster. The Tories’ eurosceptic right-wing has been emboldened to press for their autarchic vision of “splendid isolation”. Supporters of the EU who voted to remain have been encouraged in the belief they can reverse Brexit. Business feels excluded. The public want it over and done with. Political uncertainty has undermined confidence and dampened investment, which in turn has increased political instability. The EU’s hand is strengthened.

Squaring a circle

On October 9 Theresa May set out the government’s position on Brexit. Britain would leave the EEA, the customs union and single market, and negotiate a “deep and special partnership with the EU…. The British people voted for control of their borders, their laws and their money. And that is what this government is going to deliver”. This is what we should expect to happen.

Britain needs to secure a mutually beneficial arrangement with the EU. If this cannot be achieved and Britain leaves the EU without a deal, it will have to be secured at a future date. The goal is an optimal balance between our democracy and sovereignty, and economic integration.

The US economist Dani Rodrik argues that national sovereignty is incompatible with economic integration. Integration requires the elimination of all transaction costs across borders. Nation states prevent global regulation. They generate sovereign risk and cause discontinuities of regulation at borders. Democracy, sovereignty and economic integration are mutually incompatible. “We can combine any two of the three”, he says, “but never have all three simultaneously and in full”. To prove his point, Rodrik offers three combinations.

The first combination is to maximise economic integration at the expense of national sovereignty. This is the EU model, an experiment in globalisation on a regional scale. It has been pursued by centre-left and centre-right parties across Europe. Countries pooled their sovereignty for an economic return, but the entrenching of liberal market economics has created societies of winners and losers. There is a populist revolt against refugees and high levels of immigration. Britain has voted to leave, and Poland and Hungary are asserting their rights to more national autonomy. The lack of democracy in the EU, the diktat of Berlin to other eurozone members and the eurozone crisis have revealed the limitations of this combination.

Since its days as a common market the EU has haltingly attempted to move towards ever greater union but it is now floundering. It is neither fully integrated and supranational, nor an intergovernmental organisation of independent states. As the forces of ethnic nationalism have begun to reappear, President Macron is a lone voice calling for a “new European venture” built around “sovereignty, a taste for the future, and democracy”. Around him other heads of state are turning inward anxious about the populist tide.

The second combination is to maintain national sovereignty and boost global economic integration at the expense of domestic objectives. This is the favoured option of the free market, hard right Brexiteers, who like to cite Singapore as their economic model. Free trade requires Britain to be committed to the four main modes of providing services: consumption abroad, cross border supply of services, commercial presence and movement of labour. The free market right will seek to further liberalise the economy and open up public services and government procurement to deregulation and privatisation.

This kind of deep economic integration favoured by hard-right Conservatives will eradicate the distinction between domestic policy and trade policy. Global rules in effect become domestic rules. A translation that requires extensive state intervention to create new markets. Democracy and the security of working people are the trade-off and they take second place to the free movement of capital, people, services and goods. But this return to Thatcher’s neo-liberalism  would meet considerable political resistance. People have lost faith in the principle of laissez faire. There is no appetite for a second Thatcher revolution that opens up the NHS and public services to privatisation, accelerates more inequality and entrenches our low skill, low pay economy.

The third combination is to prioritise national sovereignty and democracy and place constraints on global economic integration. This is the combination implicit in Labours 2017 manifesto. The trade-off is the market economy and it is the option favoured by Labour’s eurosceptic hard-left faction whose policies of increasing nationalised ownership offer a form of state socialism in one country. This approach has found support amongst the young who are suffering more than older generations from low wages, poor job prospects and lack of homes. However there is little enthusiasm amongst older generations for increasing both state power and the national debt. Nor for the loss of liberty and the undermining of national security the politics of the hard-left would entail.

Dani Rodrik’s three combinations illustrate the intractability of a status quo Brexit based on existing institutional arrangements. The combination that formed the status quo underpinned mainstream politics for over 30 years. First came the Scottish referendum, then Brexit. The centre-ground of the union is now shattered. This poses a severe problem for the moderate Labour remainers who want to reverse Brexit. They lack a viable politics that can carry them forward, and they lack support both in the party and across the country. The other two combinations appeal only to minority opinion. They profit the political extremes of the hard-right and hard-left. Both will create unaccountable concentrations of power, either in the market or in the state. Both will diminish democracy.  None of Rodrik’s three combinations offer Britain a way forward to democracy and prosperity.

Brexit

The more economic integration Britain seeks the greater will be the judicial integration. Neither the European Court of Justice nor British courts can be the sole arbiter of disputes in a new relationship. The practice of reciprocity can enable a mutual pooling of interests and sovereignty, perhaps in a new judicial body (unlikely however to be welcomed by the ECJ), and where arbitration courts are insufficient a political process. The practice of reciprocity can also help to define the institutional arrangements for making the Brexit deal on citizens rights binding, either in a jointly owned body or in British courts using EU legal principles.

Can we negotiate a new agreement? There is a mutual interest amongst British and EU companies to avoid barriers to trade. But what matters is the political will and leadership to leave and forge a new kind of relationship with the EU. The point is made by Sir Con O’Neill, the leader of the official negotiating team for Britain’s entry into the European Community between 1970 and 1972. The negotiations he decided had been peripheral to the single imperative of Britain joining the EC. “None of its policies were essential to us; many of them were objectionable”. The EC offered opportunities, not answers to Britain’s problems. Nothing, he wrote, could be more misleading or more dangerous than to suppose it was the remedy for our deficiencies.

Brexit happened because Britain failed to change and put right our own deficiencies. Failure rests with both major political parties. Popular sovereignty has instructed parliament to choose the common good of the nation state over a Brusselised Europe. Brexit is a watershed. The trade- offs we make between sovereignty and integration in a new relationship with the EU cannot be separated from the need for institutional innovation and from a new national economic and political settlement for Britain.

What kind of country do we want to make? What role shall we play in the world? The Conservatives sunk in their own turmoil and the minutiae of negotiation have no answers.

What about Labour?

This should be Labour’s historic moment as it was in the years of 1940 and 1941, when it supported Churchill against appeasement and backed the Atlantic Charter. Labour spoke for the whole country. It laid the foundation for its post-war settlement at home and its role in building the international order abroad. But despite Labour’s 2017 manifesto our leadership offers no such patriotic vision of national renewal, nor does it have anything to say about Britain’s role in the world. The manifesto was a first step, but it lacked a truly national appeal. It set out plans to increase tax and spending but said little about creating the wealth we need, nor the crucial issue of how we can improve work and wages. The promise on tuition fees galvanised a younger middle class generation but tipped the manifesto into offering a regressive redistribution. It will not build the broad national coalition the party needs to win the next election.

Despite the wishes of many MPs, the Labour Party will not win a general election as a champion of remaining in the EU. Labour supporters who voted remain put the economy first. Those who voted leave put national sovereignty and democracy first. The role of political leadership is to rebuild Labour’s coalition with a national popular programme around a trade-off between the two. Labour leavers and remainers must make common cause against the unfettered capitalism of the hard-right. This must include a new political economy to redress the power of capital. It must put work and wages first, not simply rely on a big state spending money. England needs genuine devolution of political and economic power. A more federal union will make a stronger Britain. And post-Brexit Britain requires a geopolitical strategy for our defence and our role in the world.

Leadership requires hard choices, a search for compromises, an ability to face conflict and difference, the building of bridges and a way of asking from people as well as giving to them. This kind of leadership does not exist within Labour and it is absent in the wider political class. Brexit is the crisis of this class which has lost its meaning and purpose. The British public know it, and they feel the humiliating consequences. There is no status quo and no return to the past. Brexit can restore Britain to its major nation status. Or it can fulfil the predictions of the declinists. Nothing is decided.

Jonathan Rutherford is an academic and was a member of the independent inquiry into why Labour lost. He also worked on the party’s policy review 2012-14.