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Brexit’s Opportunity Cost

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Brexit’s Opportunity Cost

Preoccupation with leaving the E.U. overshadows a bigger threat—that of a socialist Britain. October 15, 2019
Politics and law
Economy, finance, and budgets

Each fall, the major British parties hold their annual conferences. This year, Labour Party apparatchiks descended on Brighton, while the Tories went north, to Manchester. These jamborees come with predictable features: an aging core of loyal members, slogan tee shirts and badges, and, at the end, a speech from the party leader—in the case of the Tories, Prime Minister Boris Johnson—or from the man who wants his job—in the case of Labour, Jeremy Corbyn.

Beyond the outward signs of business as usual, this year’s conference season confirmed just how far British politics has veered from normal. Labour’s conference was interrupted by news that the Supreme Court of the United Kingdom had ruled against the government in a historic case involving the legality of its decision to suspend Parliament, with MPs suddenly having to return to London. In addition to blowing the government’s Brexit plans off course, the ruling also meant that Conservative ministers and MPs—denied the recess usually granted during conference season—would have to be in two places at once.

These logistical headaches point to something more important. Given that a general election is around the corner, the spotlight on the two parties and their leaders should be brighter than usual—their plans taken especially seriously, their fitness for office rigorously scrutinized. And yet, that light is largely blotted out by Brexit, which absorbs all attention. Failing to make good on the result of the 2016 referendum would be a political disaster; how Britain disentangles itself from the EU has significant political and economic consequences. But what if, contrary to all assumptions, Brexit isn’t in fact the most important issue in British politics? What if the country’s preoccupation with getting that one thing right means it risks getting other things wrong?

Corbyn is widely viewed as having played his Brexit hand badly. He’s in limbo—neither wholeheartedly backing the campaign to stop Brexit nor facilitating Britain’s departure—but he’s also the main beneficiary of the Brexit pandemonium, which has made old-fashioned economic questions less prominent. It has also created new loyalties—Leave and Remain—that cut across party lines and loosen long-standing allegiances. The result: a climate in which Corbyn and his team—until 2015, the Labour Party’s far-left fringe—are taken seriously by voters who normally would have balked at their plans. Team Corbyn has unveiled the most left-wing economic agenda ever proposed by a major party in Britain, even as the average Labour voter’s economic views have shifted to the right, thanks to the Brexit shakeup.

The Labour agenda is far more than a reversal of spending cuts implemented by the Conservative-led coalition in the wake of the financial crisis. It amounts to a transformation in the role of the state in British economic life.  A Corbyn government would be nothing short of revolutionary, with John McDonnell—his Marxist Shadow Chancellor of the Exchequer—making no bones about his desire to “overthrow capitalism.” Labour wants a ban on private schools, a Green New Deal with an aggressive target of net-zero emissions by 2030, the return of collective-wage bargaining, and a 32-hour working week. The party plans to force public companies to hand over 10 percent of their shares to employees and is committed to nationalizing industries, including railways, water, the postal service, and the energy sector. When pushed on the cost of these acquisitions, McDonnell answered, “Parliament will set the price,” meaning that below-market asset valuation—or confiscation—could be in the works.

Brexit is also undermining the Conservative Party’s claim to careful economic stewardship, traditionally its most powerful argument in elections. This week, the Institute for Fiscal Studies, an influential think tank in London, predicted that the economic cost of a no-deal Brexit—which the Conservatives are willing to entertain—would exceed the cost of a Corbyn-led government. Citi reached the same conclusion. According to the Financial Times, the investment bank predicts that the economy could grow by 5 percent in 2022 under a Corbyn government. This misses the point entirely. While Labour is less likely to pursue the most economically perilous version of Brexit—or any Brexit—its plans for the British economy are a recipe for decline, not prosperity.

Meanwhile, obsession with Brexit has cost the government dearly in terms of focus. This week, the Office for National Statistics reported that labor productivity contracted in the second quarter of 2019 at the most dramatic rate in five years. Some of this is surely Brexit-related, but it’s only the latest chapter in a decade-long story in which post-crash productivity growth continues to lag. The Conservatives have held power since 2010; failure to solve this problem chips away at their economic arguments. But for all their shortcomings, and for all the problems posed by Brexit, the U.K. faces a more dire threat.

Photo by Christopher Furlong/Getty Images

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