Photo by Christoph Scholz |
One
of the key themes which serves as the source of most of the undercurrent of discontent
for leave voters is neo-liberal economics. The adoption of neo-liberal principles
by the UK from Thatcher in the 1980s has divided the UK as much as it has
progressed the country. The outcome of this is that the frustrations of those
negatively affected has been built up over decades and been released in the
form of Brexit, primarily on the grounds of immigration. In this blog, I will
argue that a combination of the ignored factor of neo-liberal economics as well
as opinions on immigration culminated in creating Brexit.
The
beginning of the UK’s shift towards neo-liberal economics can be linked back to
Thatcher’s reign. It was during Thatcher’s first premiership under the
influence of neo-liberal principles provided by Friedman and Krugman, that Thatcher
induced privatisation of utilities and, more importantly, the deregulation of the
financial markets. The deregulation of financial markets in 1986 led to the
financial big bang, which saw the huge growth in activity in financial markets.
While this can be seen as the origin of London’s stronghold as one of the major
financial cities in the world, it was also a long-term trigger to the financial
crisis that occurred in 2008. The deregulation of financial markets allowed
financial institutions to have little observation and naturally saw a move to
the creation of risky products and loans in order to push returns.
This
is evidenced with the sub prime loans crisis in America, which saw the gifting
of mortgages to people who could not afford them. This went even further with
the creation of CDOs (Collateralised Debt Obligation), which was essentially
debt being bundled up into products and sold on. This could occur due to the
lack of regulation over the markets and the outcome was the financial crisis,
in which millions lost their jobs and millions who were offered affordable mortgages
found themselves in a situation where they could no longer afford them and had
to move out or increase their debt. More importantly, the experience of the
financial crisis, which was a product of neo-liberal economics, can then be redirected
at the EU, who was seen not to do enough to protect UK. In addition, the
outcome was years of austerity which forced cuts to the NHS, benefits and
public services resulting in further discontent for leave voters who
apportioned the blame to the EU rather than neo-liberal economics.
A
further observation from the deregulation of financial markets is that it
coincided with the structural decline of our manufacturing industry,
specifically in the north of England. It is no surprise that majority of Leave’s
votes came in the North East, Yorkshire and the North West as in Fig 1. What
neo-liberal economics brought was the increase in competition from foreign competitors
due to the founding principle of free trade and this saw the decline of the
secondary sector as the UK’s competitiveness lied in its tertiary sector
services. The real issue is that no transition mechanism was in place to help
workers to deal with the displacement of their industry. This led to high
levels of unemployment within manufacturing plus the low wages brought about
from outside competition. This economic hardship, especially in the north,
coincided with the growth in the south in services, which blossomed due to the
hallmark of neo-liberalism: free movement of people and capital and free trade.
Thus, anger and discontent grew in the UK, and Brexit could be seen as the
product of the discontent, specifically as a revolt against the establishment.
With
the rise of neo-liberalism in the 1980s and 1990s we started to see the rise of
international neo-liberalism with the creation of supranational organisations such
as WTO and the Maastricht Treaty in the EU. This increased further the level of
mobility of capital and resources. Specifically, the growth of the EU coincided
with growing inequality in the UK. The big bang in 2003 saw the inclusion of
many eastern European countries into the EU, which started an inflow of
immigration from such countries. The issue with immigration only became
pertinent during the aftermath of the crisis, when austerity was implemented.
Manysaw an influx of immigrants, while simultaneously facing stagnating wages,
decreasing public services and increasing living costs. Whilst most of their
hardship came from the crisis, they saw immigration – a product of neo-liberal
economics, as the reason behind their economic hardship.
Their
reaction was thus to target immigration, and they saw the EU as a main cause of
immigration. Unsurprisingly, many voted for Brexit on the ground of controlling
their borders. The
rise of neo-liberal economics has brought divisiveness where there should have
been hope. What neo-liberal economics showed is that without regulation, restraint
or just plain moderation, it can be counter-productive and cause the opposite
of one of its main aims – ever closer integration.
Daniel Oyebamiji
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