The news from England and Scotland is dismal. A stunning victory for the Conservatives and Nationalists. A disastrous loss for Labour. It will be several days before I will pull myself together sufficiently to look at the figures in detail, but since we know the demographic make-up of the population as a whole, we already know that a disproportionate number of working families voted, inconceivably, for the Conservatives, leading me to wonder: what is wrong with labour?
What the figures, I believe, will show, first, is that working families have grown wary of macroeconomics’ famous “gains from trade” dictum, which states that if I want what you have more than what I have, and if you want what I have more than what you make, then we can both gain from trade; and, second, that working families have grown equally doubtful of a policy of open labour markets, eased immigration laws, and a social safety net that appears to benefit non-British residents, all of which the Conservatives successfully pinned on Labour, even though Labour assiduously denied these connections throughout its losing campaign. That is to say, I believe that what the numbers will show is that working famlies in the United Kingdom have become economic nationalists, a trend that we can observe throughout continental Europe, and a trend that does not speak well for the future of the EU.
One response to economic nationalism is to give it its due. Gains from trade are often over-rated because they assume “caeteris paribus,” all else being equal, which, of course, they never are. Erecting barriers to free trade can sometimes give national economies breathing space to collect themselves and carry on. There are, however, several problems with this response. First, it ignores the fact that finance and capital already enjoy fairly open borders. This means that, while finance and capital are free to trot about the globe taking advantage of whichever markets grant them the highest returns on investment, the same cannot be said for working families, which are inevitably weighed down by the disability of being somewhere in particular — Manchester, Edinburgh, Wales — and not in all places at once. This relative immobility of labour, in contrast to the freedom enjoyed by finance and capital, means that should the cost of labour in the UK stand but a hair’s breadth above the cost of its international competitors, finance and capital will always choose its foreign competitors over domestic labour. That simply stands to reason. A level playing field would therefore entail placing similar restrictions on finance and capital that labour cannot help but be saddled with.
But — and this is the second possible response — restricting the international flow of finance and capital is contrary to the founding principles of the new Labour Party. Ever since Tony Blair joined first Bill Clinton and then George W. Bush in a mission to free up capital markets, the deregulation of capital has been one of the crown jewels of the new Labour Party. Of course, it is obvious to anyone who enjoys even a primary school familiarity with economics that restricting labour markets while simultaneously freeing capital markets is simply another way of creating efficiencies by punishing domestic labour. This is not an argument in favor of restricting finance and capital markets. Rather, is it an argument in favor of joining the liberalization of capital and financial markets with the liberalization of labour markets, permitting both the freedom to travel where they like, whenever they like, without the burdens of purely parochial constraints, limitations, and peculiarities.
And there precisely is the rub. British working families in what seems to be fairly convincing numbers chose to punish Labour for what they perceived to be its contradictory positions on British economic policy. Do immigrant labourers place an undue economic burden on British working families? Of course not. The burden, almost entirely, arises from the disproportionate benefits finance and capital enjoy vis-a-vis domestic labour markets. Leveling the playing field would entail greater freedom in labour markets, not restricting these markets. Yet, this fact presents a real dilemma to new Labour, not least because the Conservatives campaign to pin the hardships of working families on government regulation, growing welfare rolls, and out-of-control immigration has been overwhelmingly successful. Labour is thus found on the wrong side of two fences, one of which they played a central role building, and toward the other of which they have displayed great ambivalence. For, we need to remember, it was Tony Blair who embraced the mantra of deregulated financial and capital markets. Yet, clearly, it was precisely the deregulation of these markets that deprived labour whatever benefits it might otherwise have enjoyed from restrictions compelling domestic capital to devote at least a small pitance of its profits to domestic investment. Free to roam the world, domestic labour markets have just as clearly been the victims of capital’s notorious wanderlust.
Yet, Labour also suffered from its ambivalence towards nationalism proper. Clearly among many working families, Labour is associated with the loose immigration policies from which they, wrongly, believe they are suffering. One might wish, of course, that British voters enjoyed a better grasp of macroeconomic principles. Here, however, we must not forget the cruel instructor who last taught them these principles. Once the American Charles Dawes convinced fellow banker JP Morgan to bale out Germany in 1924, capital began once again flooding into the British economy (on its way back to JP Morgan and the US). This made it seem as though all was well. But, since it was largely based on finance and not on capital improvements or manufacturing, the reality was not as it seemed. Eventually the bubble burst and the global economy was plunged into a Great Depression. And it was at this point that Lord Keynes, in his famous 1932 Atlantic Monthly article, delivered the terrible news that it might take a costly and tragic world war to lift the world out of this depression:
I hope that in the future we shall not adhere to this purist financial attitude, and that we shall be ready to spend on the enterprises of peace what the financial maxims of the past would only allow us to spend on the devastations of war (Atlantic Monthly, August 1932).
And, so, against its best interests not only Great Britain, but, it seems, most of continental Europe as well, is preparing itself once again to go back to school so that it can relearn why economic nationalism, deregulated markets, when combined with free financial and capital markets, form a toxic elixer. It was only after the dusts of war had settled that Great Britain and Continental Europe finally grasped the colossal mistake unregulated financial and capital markets had been in the absence of completely open trade and labour markets in Europe. Thus the birth of the EU.
I could be wrong. But I think that the polling numbers will tell something like the story I have traced above, which is, of course, scant reassurance for those of us who wish only the best for Labour, the United Kingdom, and the World.