The following is my contribution to a pamphlet to be published early next month.

Readers of the centre-left or liberal press are constantly told that supporters of Brexit are not only inevitably right-wing, but ignorant, prejudiced, xenophobic, or just plain deranged.  The possibility that there is a perfectly rational case for reconsidering our future in Europe, a case that is not only consistent with a left-of-centre stance but actually required by it, is overlooked.  The debate is all the poorer for it.

I have been involved with this issue since, as a new recruit in 1964 to both the Labour Party and the Foreign Office, I worked on Common Market issues and later, from our Brussels embassy, helped to organise the Wilson-Brown tour of Common Market capitals as part of a further attempt to have the Gaullist veto on our membership lifted.

By the time I returned to the UK in 1968, I was clear that the issue was not whether we should or could be part of Europe, since no one could doubt that we were historically, geographically, culturally, and politically an integral part of that entity, however defined.  The question was not whether, but what kind of Europe?

I had come to the realisation that what we were offered was not “Europe” but a Franco-German deal guaranteeing free trade in manufactures to the Germans in return for subsidised agriculture to suit the French.  It was a deal that was directly inimical to British interests and, in particular, to the jobs and living standards of British workers.

It is often forgotten that joining “Europe” in 1972 represented for Britain a restriction of our trading opportunities and an abandonment of a rational and long-established trading pattern.  It meant a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive and therefore less competitive.  It also meant an end to the preferential markets we had enjoyed beyond Europe, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.

Yet we are told, in support of the constantly repeated refrain that Britain has no option but to stay in the EU because there are no other viable choices available, that we derive unmatchable trade advantages by virtue of the simple fact of our geographical proximity to the European market.  We cannot afford to turn our backs, we are told, on the market in which we now do most of our trade.

This argument is so full of holes that it is surprising that its proponents think it worthwhile to make it.  First, it would be hugely surprising if the figures did not show an increase in our trade with the EU and a comparative decline with the world outside.  What, after all, was the whole exercise about, if not to concentrate our trade in Europe and divert it from elsewhere?

If more than 40 years of managed (rather than free) trade, in which a European customs union on the one hand and tariff barriers against the world on the other have quite deliberately and systematically narrowed our trading opportunities, we would surely be able to sue for false pretences if something of the kind had not materialised.  But is that outcome necessarily to be welcomed?

The UK is surely the last country to be told that trade is something best done at close quarters.  No other country has enjoyed more extensive trade links or has a longer or more successful experience of the great advantages of trading on a world-wide scale.  It is surely a matter of regret rather congratulation that British goods are rarely seen today in markets such as Australia and New Zealand and that EU membership restricts our freedom to improve our trading prospects with some of the fastest growing economies in the world such as India.

The concentration of our trade in Europe, while markets elsewhere have been systematically neglected, may please the true believers but it has left our trade dangerously unbalanced and focused unnecessarily on a market where the evidence over four decades demonstrates that we are at a substantial disadvantage.

Let us put to one side the very large net annual contribution we pay to the EU (a continuing burden on our balance of payments and variously estimated at somewhere between £8.5 billion and £11 billion each year).  The crucial fact is that we have now run a trade deficit in every year since 1982, just, as it happens, when the full impact of EU membership took effect – hardly a coincidence, since the greater part of that deficit is with the other members of the EU, and much of it arises in the trade in manufactured goods­­.

That deficit continues to weigh on the whole economy and shows no sign of diminishing.  In the quarter to the end of January this year, it amounted £23 billion; in January alone, the deficit in our trade in goods with the EU amounted to £10.3 billion.

That trade imbalance does more than suck productive capacity and jobs out of the UK.   It means that we dare not expand our economy for fear that an increased level of activity will mean yet more manufactured goods sucked in from the EU, and an even higher deficit that can be financed only by increased borrowing and the sale of yet more assets – in addition, that is, to the more than £600 billions worth we have already sold in recent years.

The deficit in our trade with the EU in manufactures has meant that our manufacturing sector has shrivelled away, and now contributes just 10% of our GDP – a lower proportion than is to be found in any other advanced industrial country.   This dramatic loss of manufacturing capacity has meant that working people and their families, especially those in the regions, have lost out on jobs and decent pay – the steel industry is just one example among many.

And, with manufacturing prospects so poor, it is not surprising that our net investment in new manufacturing capacity is virtually nil, so that our ability to compete in the future is even further reduced.  These developments, with their serious implications for the living standards of working people, are, or should be, of major concern to the left.

The seriousness of these downsides of the current arrangement is not usually denied, since the facts cannot be gainsaid.  Apologists try instead to distract attention from them by framing the debate in terms of rival pessimisms; we are constantly told that the burdens of membership are unfortunate but are outweighed by the risks of being left out in the cold. We are solemnly warned that our EU partners will refuse to trade with us if we upset them by pressing for a different and better Europe.

But – while blood-curdling warnings designed to deter us from reaching a rational decision are only to be expected – are our partners really going to turn their backs on a one-sided trade relationship that has been so much to their advantage?  Once we decide to re-negotiate our relationship with the EU, it will no longer be a case of issuing dire warnings but of grappling with a real situation.  Talk of retribution and punishment for daring to take a decision in our own interests will no longer be relevant. The focus will inevitably be on optimising the trade opportunities for both the EU and the UK, and our own interest in maintaining access to the EU market will be at least matched by the European unwillingness to lose access to ours.  It beggars belief that valuable trading opportunities would be passed up in a fit of pique.

We should take in any case take courage from the lessons of our own experience.  Similar arguments were made about the supposedly disastrous consequences of leaving the European Monetary System and of not joining the euro.  Most people in Britain will offer daily thanks that we had the courage to reject those arguments and to stay out of the euro.  Our euro-zone partners rapidly decided that they needed us at least as much as we are said to need them, and then simply got on with it, on the terms that we had decided.

The issue of the EU’s response to a Brexit is of course an interesting test of the real purpose of the EU.  Is that purpose really free trade, in which case they would do their utmost to keep trade links open?  Or is it really the creation of a European super-state, run in the interests of the dominant economies?  It is only on that latter assumption that we might expect that, even at the expense of the EU’s own economic self-interest, defectors would be punished pour encourager les autres.

A decision in favour of Brexit would not in any case produce, as is so often alleged, the complete rupture of our relations with the EU.  It would not mean turning our backs on Europe.  It would signal instead the real possibility of a new European agenda, aimed not only at a better deal for the UK but also at a better and more constructive Europe, and one with a greater chance of success.

A new Europe would not operate, as it has done since its inception, against the interests and instincts of the left.  It would no longer operate as a manifestation of free-market capitalism, providing an intervention-free zone so that market forces can always prevail and serving the interests of big business rather than those of ordinary people.  It would not, in thrall to neo-classical economic doctrine, impose a policy of austerity across the continent, trashing the interests of working people across the euro zone and requiring them to bear the burden of free-market failures – ask Syriza and the people of Greece.

It would not run a hugely diverse economy in terms of a monetary policy that suits Germany but no one else.  It would not attempt to impose a political structure decided by a small elite, but would allow the pace of cooperation and eventually perhaps integration to be decided democratically by the people of Europe.

There are those on the left who urge the UK to remain in the EU on the ground that we are lumbered with a Tory government for the foreseeable future and that to leave would mean giving up any chance of defending social and employment provisions, in both UK and European law, that would be vulnerable to Tory attack.  But to treat as a plus the fact that a body of law cannot be overturned by democratic decision or through the exercise of the powers of self-government is surely an extraordinary position for the left to take; such a defeatist and anti-democratic argument should not be countenanced by any democrat or anyone prepared to work for a Labour government.  The left was keen to oppose Mrs Thatcher when she asserted that “there is no alternative” but we are invited to acquiesce when a similar message is delivered by the EU.

Even if it had any merit, it is in any case outweighed by the much more powerful and democratic argument that an incoming Labour government would find it much easier not only to defend but also to advance the interests of working people if it were untrammelled by EU commitments.

It would not, for example, be unable – by virtue of the EU’s injunction against state intervention or giving priority to domestic suppliers – to defend the jobs of steel-workers.  It would not be obliged, given the EU’s outlawing of subsidies for public services and its predilection for privatisation, to sell off the Royal Mail.  It would not be bound by a Transatlantic Trade and Investment Partnership to concede to international corporations the power to sue a Labour government if its policies threatened to reduce their profits.  It would not be powerless to stem the inward flow of cheap labour which has done so much to lower the floor that underpins the level of wages.  And it could view the threatened fall in the value of sterling following a Brexit as an opportunity rather than a handicap.

The left’s failure to understand these issues speaks volumes for its loss of intellectual self-confidence and the reduced level of its ambitions.   But the removal of the EU as both crutch and straitjacket could change all that.  Among the many economic benefits of a Brexit, we might also find the restoration of the left’s confidence, optimism, vision and momentum.

Bryan Gould

25 April 2016

The imminent crisis in what is still laughingly called the British steel industry is being greeted just as other similar developments have been for decades – with consternation and anger, with concern for the implications for social cohesion in general and for workers’ families in particular, but with no recognition that this is just the latest episode in what is now a depressingly long saga.

As one British industry after another has either passed into foreign ownership or closed down, or – as in the case of the steel industry – both, very few recognise that this is not just a one-off but is part of the long and not so slow de-industrialisation of Britain.

As we emerged from the end of World War II, the UK’s share of world trade in 1950 was a respectable 10.7%.  It is now just over 2%.  Our share of trade in manufactures has fallen by a similar proportion.

Manufacturing accounted for 32% of national output in 1972, but that proportion is now about 10% and still falling.  In Germany, the figure is 21%.  No other major developed country attempts to maintain its developed status with such a low contribution from manufacturing industry.

Not surprisingly, we run a huge deficit in our trade in manufactured goods.  Much of that deficit arises in our trade with the other developed economies of the European Union – the countries that, we are told, will stop trading with us if we leave the EU.

The consequence of the decline of manufacturing is that we have run a perennial trade deficit in every year since 1982.  We have, in other words, traded at a loss and failed to pay our way in every one of the last 34 years.  That deficit, the country’s and not the government’s, is of course the one that really matters – yet it is now so much part of the familiar economic landscape that it scarcely warrants a raised eyebrow.

How do we get away with pathetic rates of investment (a net rate of nil) and productivity growth (almost zero), and with running at a loss year after year?  We don’t.  We have to borrow from overseas and sell off our assets to foreigners to close the gap.  We have sold over £600 billions’ worth of assets over recent years.  This is a rake’s progress that cannot be sustained for much longer.

On the few occasions that the matter is raised, we are given reassuring answers.  We can’t compete in manufacturing against low-cost, low-wage competitors, we are told – so how come the Germans can, and that some of those “low-cost” economies now enjoy higher living standards than our own?

Then we are told that it makes sense to concentrate on high-value activities like financial services rather than on dirty, smelly manufacturing.  But doesn’t that leave the economy too narrowly based and isn’t it special pleading on the part of the City of London which in any case hogs all the benefits and leaves the rest of the country, in both social and geographical terms, scrabbling for a crust?

So, if we were for once to take these matters seriously, what is to be done?  The first essential is to understand why de-industrialisation continues to gather pace.

The stark truth is that we can’t pay our way because we can’t persuade enough customers, either at home or abroad, to buy British-made products at the prices we ask for them.  And that, in turn, is because it costs more to make goods in Britain than it does elsewhere.  And why is that?  Because we say that it should.

About 70% of the costs in manufacturing are domestic costs, such as the costs of labour and so on.  Those domestic costs are translated into international prices by the exchange rate – and, in the end, we set the rate.

If the rate for sterling was higher, our goods would be even less competitive, so that our market share in international markets would fall further, as would profit margins on international sales.  In the long run, if the rate is kept at too high a level, it will inevitably fall, but not necessarily to the point where we could start again with a level playing field.

If the sterling rate was lower, sales and profit margins would pick up – a lesson learned by many other countries which have grown at our expense.  So, why don’t we learn from them, and manage our exchange rate so that it doesn’t prejudice our economic health?

The answer is that we set a high exchange rate because it seems to suit our interests – or at least of some of us.  It suits those who hold assets, but it means that wage-earners are made to bear the whole burden of trying to improve competitiveness by accepting lower wages – a major factor underpinning widening inequality.

But the exchange rate is decided by the market, we are told – we couldn’t change it even if we wanted to.  But if that were true, how is it that other countries have engineered lower exchange rates without difficulty and do so regularly?  Just ask the Chinese, or Prime Minister Abe of Japan, who has brought about a depreciation in the yen’s value of more than 30%.

There will of course be much wringing of hands and crocodile tears over the steel industry, but there will be more of the same, continuing seven decades of decline, unless we face some hard facts and take the required action.

Bryan Gould

3 April 2016

An uncommitted reader of the British press would rapidly conclude that, on the issue of the UK’s continued membership of the European Union, there is an easily-drawn dividing line. Those who favour withdrawal are on the right in political terms; those who would retain membership are on the left.

Readers of the centre-left or liberal press would go further; coverage of the issue would suggest that the supporters of Brexit are not only right-wing, but ignorant, prejudiced, xenophobic, or just plain deranged. The possibility that there is a perfectly rational and moderate case for reconsidering our future in Europe, a case that is not only consistent with a left-of-centre stance but actually required by it, is overlooked. The debate is all the poorer for it.

My own involvement with this issue goes back a long way. As a new recruit to the Foreign Office in 1964, I worked on Common Market issues and later, from our Brussels embassy, I helped to organise the Wilson-Brown tour of Common Market capitals as part of a further attempt to have the Gaullist veto on our membership lifted.

By the time I returned to the UK in 1968, I was clear that the issue was not whether we should or could be part of Europe, since no one could doubt that we were historically, geographically, culturally, politically, and inevitably, an integral part of that entity, however defined. The question was not whether, but what kind of Europe?

I came to the realisation that what we were offered was not “Europe” but a Franco-German deal guaranteeing free trade in manufactures to the Germans in return for subsidised agriculture to suit the French.

Joining “Europe” in 1972 represented for Britain a restriction of our trading opportunities and an abandonment of a rational and long-established trading pattern. It meant, through the Common Agricultural Policy, to whose costs Britain was and remains a major contributor, a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive. It also meant an end to preferential markets beyond Europe, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.

But have we not derived great advantage from our trade with the EU? Well, hardly. Let us put to one side the very large annual contribution we pay to the EU (a continuing burden, as it happens, on our balance of payments). We have now run a trade deficit every year since 1982, which was just as the full impact of EU membership took effect – not just a coincidence, since the greater part of that deficit is with the other members of the EU, and much of it arises in the trade in manufactured goods.

The result is that our manufacturing sector has shrivelled away, and our net investment in new manufacturing capacity is virtually nil. We are of course solemnly warned that our EU partners will refuse to trade with us if we insist on a different and better Europe; but are they really going to turn their backs on a one-sided trade relationship that has been so much to their advantage?

The weakness of the case for continuing membership of the current arrangement is shown by the fact that it is almost always articulated in terms of rival pessimisms; we are constantly told that the burdens of membership are outweighed by the risks of being left out in the cold.

But we should take courage from the lessons of experience. Similar arguments led us to join the European Monetary System, which proved disastrous, and were then repeated in respect of the euro. Most people in Britain will offer daily thanks that we had the courage to reject those arguments and to stay out of the euro, and there is no reason to suppose that they have any greater weight in the current debate. Our trading partners in Europe need us at least as much as we are said to need them, as post-Brexit negotiations would surely demonstrate.

In any case, a decision in favour of Brexit would not mean, as is so often alleged, turning our backs on Europe. It would signal instead the opening of a new agenda, aimed at developing a better and more constructive Europe, and one with a greater chance of success.

A new Europe would not operate, as it has done since its inception, as a manifestation of free-market capitalism, serving the interests of big business rather than those of ordinary people. It would not impose a policy of austerity in thrall to neo-classical economic doctrine. It would not run a hugely diverse economy in terms of a monetary policy that suits Germany but no one else. It would not impose a political structure decided by a small elite, but would allow the pace of cooperation and eventually integration to be decided by the people of Europe as they and we became more comfortable with the concept of a European identity.

If we have the courage, we could, in other words, not only benefit ourselves but help the development of a Europe that truly does serve the people of Europe. That is surely a project to attract even the most enlightened of bien pensants.

Bryan Gould

17 March 2016