Brexit: The Ruling Class Shoots Itself in the Foot

Brexit finally came into force on 1 January 2021, over 4 years after the referendum of 2016. During these four years the leading bodies of the British capitalist class had fought a delaying and rear-guard type of campaign to stop it happening but failed.

Submitted by Internationali… on April 26, 2021

Brexit appears to be against the interests of the UK capitalist class as a whole. The Christmas Eve deal, so-called Trade and Cooperation Agreement (TCA), makes the UK a “third” country and restricts trade between the UK and its main trading partner, the EU, which accounted for 49% of the country’s trade in 2019.1 Mountains of new paperwork, red tape and new charges have come into effect causing trade with the EU to drop by 40% in the first month of the new dispensation. The main sectors of British capital are certainly not happy. Manufacturing now has masses of new forms to complete to access its main market and supply chains are significantly delayed or broken putting a stop to “just in time” production. Foreign capital which used the UK as a manufacturing base to access the EU market now finds itself located in a “third” country without free access to the EU. Agriculture now faces certification of all products and veterinary certificates for all animal food exports. The fall in exports for this sector in January was some 60%. EU support grants to agriculture have, of course, also ended. Services, which make up 80% of the UK economy, are totally excluded from the TCA. Financial services, which contribute 12% of the government’s tax income, are now excluded from the valuable Euro clearing trade and have lost their right to operate freely across the EU. It is estimated that £900bn of bank assets, equivalent to 10% of the UK banking system, has been transferred to the EU since the referendum.2 Amsterdam has now replaced London as Europe’s largest trading hub. The Office for Budget Responsibility estimates the long term effects of the TCA will be a 4% reduction in productivity, partly through the unproductive new red tape, and a 15% drop in exports and imports.3

In addition, the treaty which Johnson negotiated to take the UK out of the EU included a protocol for Northern Ireland which introduces a border in the Irish Sea. This introduces an internal border in the UK controlled by the EU something which Johnson promised would never happen and which has led to Unionist fury that has fuelled renewed sectarian rioting. Scotland, which voted overwhelmingly to remain in the EU, is now able to claim it is being taken out of the EU against its will. This enables the nationalists to demand a new independence referendum. These developments pose the breakup of the UK itself. A lot of these problems are going to get worse when the UK itself applies checks to EU imports. These have been postponed as border check posts have yet to be constructed and 50,000 additional customs clerks4 have to be recruited and trained. All of which only means further difficulties and delays to European trade. It appears as if all the major sectors of UK capital are dissatisfied with Brexit. The link between civil society and the political sphere, through which the capitalist class exert their control, appears to have been broken. The ruling class seems to have performed the equivalent of shooting itself in the foot. How is this to be explained?

Economic crisis underlies Brexit

Engels, in his history of the Communist League written in 1885, noted that he and Marx had both by 1844 arrived at the conclusion that:

"speaking generally, it is not the state which conditions and regulates the civil society at all, but civil society which conditions and regulates the state, and, consequently, that policy and its history are to be explained from the economic relations and their development, and not vice versa."5

The phenomenon of Brexit must be related to the crisis in the economy which the capitalist class have been unable to solve. The outlines of the economic crisis have been considered many times in ICT publications. Here we simply restate the main conclusions. The tendential fall in the average rate of profit on productive capital led indirectly to the US reneging on the Bretton Woods agreement where the dollar was fixed to gold. By devaluing the dollar but ensuring it remained the currency of world trade the US pushed the effects of the crisis to all countries using the dollar. This initiated a period of crisis which extends to the present. The main counter-tendencies to restore average profit rates are increasing the rate of exploitation of the working class and devaluation of constant capital. Since the 70s both of these have been applied with a vengeance. Restructuring of capital in the central countries and reduction in indirect wages via cuts in benefits, health and pensions, together with privatisation, produced an increase in exploitation and a devaluation of capital. In addition the rate of turnover of working capital was accelerated.6 At the same time a new phase of globalisation was initiated bringing millions of additional workers with significantly lower wage rates into the clutches of Western capital. A further boost for the system was the collapse of the USSR and the full entry of China and India into the circuit of global capital. Russian constant capital was sold off for a song representing an enormous devaluation of capital in the former Eastern Bloc. It was further estimated by Richard Freeman, a Harvard academic economist, that approximately 1.5 billion additional workers became available to global capital by the late 1990s and the ratio of capital to workers globally was reduced to 61% of what it would otherwise have been.7 Although these changes in strategy and political arrangement brought oxygen to the system, the tendency of profit rates to fall was simply postponed. The counter tendencies, as Marx recognised, can slow the main tendency but cannot halt it. In the new century the falling rate of profit once again became significant. The result was a lack of profitable openings for capital investment and instead of productive investment, capital turned to speculation which was accelerated by massive creation of credit and therefore debt. The extent of the financial bubble produced is illustrated by a single statistic. Before its collapse the Royal Bank of Scotland was valued at 25% more than the total GDP of the UK, a valuation which was almost entirely fictitious. The implosion of this speculative bubble led to the global collapse of 2007/2008. In the period following this collapse there has been a further attempt to increase exploitation as seen in the decade of austerity leading to a further deterioration in workers’ living standards. However, this has not produced a recovery; in fact before the Covid pandemic struck, speculation had produced another financial bubble and the system was on the brink of a further serious crisis. The economic devastation of Covid has obscured what was happening but it has done this by making the situation significantly worse.

The Brexit referendum was a chance for the working class to express their dissatisfaction with decades of falling living standards and an increasingly precarious existence. The Brexiteers took up the crudest of nationalist messages and linked this dissatisfaction to the presence of immigrants in the UK and this to the EU itself. When sections of the bourgeoisie want to rally support of the exploited class it is necessary for them to appear in ideological disguise on the political stage. They recast themselves as representatives of the downtrodden masses. Charlatans such as Trump and Johnson are past masters of this even though it appears they performed this role to further their own interests rather than those of the bourgeoisie as a whole. Johnson himself had actually published an essay supporting remaining in the EU shortly before the referendum. However, this mediocre and grotesque individual, like the chameleon he really is, changed his colours when he saw a chance of levering himself up the political ladder by increasing his standing with the right of the Tory party. In the event, the Johnson/Farage clique were as surprised as the rest of the ruling class when “vote leave” won the referendum. They expected it to fail, since the poorest and most marginalised of the working class were not in the habit of casting a vote in elections, but they had not anticipated the attraction of a one-off protest vote.

Marx shows how there is a continuity between the economic relations in society and the political arrangements which govern these economic relationships. The political sphere is an expression of the economic one. Political developments, such as Brexit, are an outcome of the economic relations in civil society but not a direct expression. Brexit appears as an inverted expression; not the one the British bourgeoisie as a whole wanted. A superficial explanation for this is that referendums are more difficult for the ruling class to control than parliamentary elections; something ex-prime minister Cameron was repeatedly warned about by European politicians but ignored. UK capital as a whole now has to live with the outcome, an outcome which benefits a very narrow section of the capitalist class such as hedge funds, rent seekers and money launderers. But the leavers’ visions of the UK becoming a Cayman Island for EU capital or a Singapore on Thames with low tax able to attract international capital via the miraculous freeports are simply pipe dreams. As UK capital comes to terms with the new situation what is more likely is that they will try to extend the low wage, low tax economy. Further attacks on workers’ wages and conditions, removal of health and safety protection, longer working hours, more precarious working and zero hours contracts are all in preparation. All this, which is in order to become competitive with EU capital is, of course, precisely the opposite of what the Brexiteers promised. We are already seeing the start of some of these things in the “fire and rehire” (on lower wages) strategy which is being applied in the service industries. The latest example of this being British Gas which is planning to fire 500 workers who would not accept significantly worse conditions. Two separate but connected questions are worth considering; firstly, what do the Brexit and Trump phenomena indicate about the direction the capitalist class as a whole will take in response to the economic difficulties the system faces and secondly, what will the reaction of the UK and global working class be to the new attacks which are beginning to emerge.

A return to national capitalism?

Brexit preceded the election of Trump in the USA but a common ideological theme animated both. The nation was, they proclaimed, in decline but this was the fault of foreigners and unfair trading conditions. The glorious past could be restored if foreigners were kept out and competition were fair. The petty bourgeoisie, who formed the core of the Trump and Brexit movements, became the most fervent supporters of this notion since they see themselves being pushed down into the ranks of the proletariat by unfair foreign competition. However, this theme also found an echo in the ranks of the working class since globalisation has brought about a tendency for industry to migrate to low wage countries and a consequent tendency for wage rates to level globally. The result has been a devaluation of labour power in the central capitalist countries, which brought workers three decades of reducing living standards. Both Trump and the Brexit brigade demanded tighter border controls and an ending of most immigration. To bring about fair competition Trump instituted protectionist measures. Moves towards state protection of industries and state scrutiny of foreign investment have been accelerated by the Covid crisis.

Covid, like the crisis of 2007/8, has also provoked significant state intervention. In Britain, whole sections of capital have demanded and received protection from the state in response to the effects of Covid. Sectors like transport have been subsidised and loan guarantees extended to industry, hospitality, services and other sectors, while direct grants have been made to small businesses. How much of this will be temporary, as most of the 2007/8 interventions were, is not clear. What is clear is that the state has now built up a historically high debt in a period when its income is reduced and ever more demands are being made on it. With the present level of debt even a small increase in interest rates will have very serious consequences for many states, including the UK. Do all these developments represent the start of a retreat from globalisation and a move towards protectionism and economic nationalism?

Globalisation has altered the structure of most of the world’s economies to the extent that supply lines are now global and production is global. A middle sized economy, such as the UK, no longer has the resources within its borders to retreat to protectionism and follow an autarkic policy. Much of its industry is in the hands of foreign capital, as are its services, utilities and even finance. For example, the UK no longer has a viable steel industry as the continual crises with foreign owned steel plants such as Tata Steel and recently Liberty Steel underline. Steel for the new Vanguard nuclear submarines, for example, and much of the Hinkley Point nuclear power station, had to be imported. Even for the US, the world’s largest economy, the protectionist measures introduced by the Trump cabal have not been very successful. The trade deficit with China fell by 10% in 2020 compared with 2019. However, Chinese global trade surplus widened by 27% in 2020 to $535bn8 in the same period, and the US went from being China’s largest export market to being its third largest, now behind the EU and ASEAN. The reason for this is the cheapness and resilience of Chinese supply chains. Whereas the Communist Manifesto described cheapness of capitalism’s commodities as the heavy artillery with which capitalism battered down all Chinese walls erected against it and forced the “barbarians” to capitulate, today it is the cheapness of Chinese commodities which batter down all protectionist walls erected against them.

Globalisation was a response to falling profit rates but received a massive boost with the entry of China, India and the Russian bloc into the orbit of Western capital. Globalisation shows how capitalism has outgrown the limits of the nation state more extensively than ever before and cannot retreat within these limits today without a major global catastrophe. This means that the material conditions for a return to a national capitalism and autarky do not exist and hence it is unlikely to happen. It also means that medium sized countries such as the UK cannot pursue their imperialist interests on their own. They need to be part of a bloc with stronger economies. Brexit has put Britain, for the present at least, within the orbit of the US and bound by US fiat. The reversal of the decision on Huawei, the Chinese telecoms company, taking part in 5G telecoms installation when ordered to do so by the US is an indication of what this means. Support for the US in a conflict with China could follow. Whereas the previous Cameron/Osborne government has tried to cosy up to China, promising contracts to build nuclear power plants in the UK and offering incentives for Chinese capital investment, such offers are things of the past. They have now been replaced by the sudden discovery of apparent genocide laying waste to the Uighurs in Xinjiang. This was completely ignored by the previous government, as indicated by ex-chancellor Osborne happily visiting the region in 2015.

Whether the British position as US subaltern is sustainable is questionable when economic interests pull in the opposite direction. As the quotation from Engels above indicates, economic interests are generally speaking determinate. As already mentioned British trade with the EU is approximately 49% of the country’s total and that with the US is approximately 14%. The European trade is therefore 3.5 times that with the US, and the EU is on Britain’s doorstep. The longer term alternative may well be for Britain to find an accommodation with the EU one way or another. This may become unavoidable if the UK starts to fracture and peripheral nations, such as Scotland and Northern Ireland, re-join the EU.

However, if a move to autarky is unlikely, do the Brexiteers' frequent attempts to bypass parliament and the judiciary or the Trump rabble’s occupation of the US capitol to prevent the certification of the democratic election results herald a sea change in the capitalist class’ use of bourgeois democracy for their political control? Is the political form of control the bourgeoisie has favoured since WW2 about to be ditched? Though arguments have been made that we are seeing the rise of proto-fascist organisations similar to those of the 1920s and a move to dictatorship is now possible9 , the present material situation of the global economy is entirely different from the post-WWI period. We consider that recourse to outright dictatorship is not on the cards. At present the capitalist class has no need to dispense with bourgeois democracy since it provides them with an arsenal of tools they need to control most working class resistance apart from a mass movement. The lockdowns introduced under Covid legislation and the current Police and Crime Bill, which could ban all protests, are indications that preparations for stronger repression are under way. The phenomena of Brexit and Trump do not appear to herald dictatorship but rather, as straws in the wind, indicate that more vicious forms of bourgeois control lie ahead. The extent to which they will be put into practice will depend on the resistance of the working class to the continuing attacks on its living conditions.

Response of the working class

The last two decades have seen a steady deterioration in the condition of the workers in the old capitalist centres with more and more forced into poverty. Unemployment has increased as wages have fallen and jobs have become insecure, part time or zero hours while the gig economy has mushroomed on the back of a “traditional” working class devastated by the defeats of the 70s and 80s. Perhaps unsurprisingly, a “restructured” and splintered working class has found it difficult to respond collectively, while the pitfalls of union-controlled struggles are largely unnoticed. Struggles which have broken out have largely been controlled and sabotaged by the trade unions and confined to single sectors or even single workplaces; nor have they been prepared support or link up with the struggles of immigrant workers. Often immigrant workers were seen as the cause of deteriorating conditions for native workers and hence competitors rather than fellow workers.

The inevitable outcome of the continuing economic crisis, Brexit, and now Covid, will be to place further burdens on the working class, leading to what Marx called immiseration of the class. The struggle between the principal classes in capitalist society, which is ultimately a result of the economic crisis, is coming to a head. For the capitalist class the solution is massive capital devaluation in another global war. For the working class the solution is the overthrow of capitalist production and establishment of communist production globally. If neither of these two outcomes is achieved we face the mutual ruin of the contending classes.

At the moment the global working class lacks both a political compass to point the way to a better world and a recognition that it must organise collectively and fight its own fight. No-one will do it for us, much less the trade union bureaucrats. Organisation and consciousness: these are the key. As the capitalist crisis more and more exposes the rottenness of capitalism and its threat to human existence there will inevitably be more “social unrest”. The key to their eventual outcome will be how far the working class begins to struggle on its own account and becomes conscious of its strength. A period like that of the mass struggles of 1905 which prepared the ground for the revolutionary wave of struggles starting in 1917 is needed. The weakness of the revolutionary struggles which started with the Russian revolution was the lack of clear political organisation which when it was finally formed was too late to influence the struggles. For this reason an international communist party needs to be formed before the next wave of class struggle breaks out. Such a party needs to have an international programme for achieving communist society and to be embedded in the working class to enable it to influence the struggles as they break out. The formation of such a party is the paramount task of today. The ICT is part of the process leading to its formation.