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Saturday, 24 September 2016

Empire Loyalists

Douglas Carswell came in for some stick this week for his erroneous claim that the sun, rather than the moon, causes tides. While the sun does exert a weak pull on the oceans, producing the effect of spring tides when aligned with the moon, the major force behind the swell of the seas is lunar, whch is why high tides can occur at night. What has got lost in the fun is that the original point by Paul Nightingale, that the moon is dominant, was an analogy for global trade. Distance matters as much as size, hence trade with Ireland (5.5% of the UK total) is larger than trade with China (4.5%). While Carswell's critics have seen this as more evidence of the war on expertise, this ignores that while the solar system is unlikely to change in the near-term the same does not apply to trade flows. But while Carswell's argument, that an increase in global trade can substitute for a reduced relationship with the EU, may not conflict with the laws of physics, it's not clear how this new state of affairs would be achieved, even allowing that the EU share of UK trade has declined in recent years.

The underlying problem is the idea that trade is essentially a matter of government choice, a belief that has been promoted by both leavers and remainers with their emphasis on trade agreements and the scarcity value of negotiators. The uncertainty over what Brexit entails is interpreted by many as incompetence because it's thought to reflects the inability of the government to make up its mind. It would be better to see it as uncertainty over the nature of the UK economy and thus an admission of the limits of government diktat. Just as the sun can amplify the pull of the moon during a spring tide, so the state can affect trade, e.g. by tariffs or embargo, but the underlying determinant is supply and demand (a point that Liam Fox was clumsily alluding to in his criticism of "lazy" British businesses). It should also be noted that among the levers available to government to boost trade, bilateral agreements are not necessarily the most effective. Investment in technology and infrastructure, to reduce transport costs, can often be more helpful in increasing trade volumes.

What this superficially trivial issue highlights is that trade has once more become a primarily political matter, much as it was in the hundred years between 1840 and 1940. In the postwar era, trade was essentially depoliticised in Western Europe, first by the equation of "open markets" with liberty, i.e. in contradistinction to the communist regimes of the East, and then by the emergence of the EEC/EU as a technocratic project that elevated trade above domestic politics. Whereas trade was once indivisible from foreign policy, it became an apolitical fact of life during the era of globalisation, no more controversial than the weather, which was an example of neoliberal hegemony. The political salience of trade has been on the increase since the late-90s, but this has been marginalised as the concern of lefties and paranoiacs obsessed with TTIP and TPP. What the EU referendum vote has done is reintroduce trade to the mainstream of politics, but in a curiously antique form.

It has become clear that the popular understanding of trade, even among politicians who should know better, is stuck in the past, hence the ready recourse to tales of swashbuckling mercantilism and the revival of trade ties with Australia and Canada. This could be dismissed as popular prejudice, but the condition of public opinion is probably more down to ignorance about prospective growth markets for British goods and services than racism. Most Brits would guess that China is the largest country by population, because that is emphasised with monotonous regularity by the press (playing on an old fear of Asiatic hordes), but few would guess that Pakistan and Bangladesh are both in the top 10 (let alone that Indonesia is in the top 5), essentially because media coverage of those countries is largely reduced to terrorism and natural disasters, which leads us to underestimate the size of their middle class and thus their spending power.

Fewer still have are aware of the gravity model of trade - i.e. that Australia is a poor prospect because it is both far way and has a population smaller than North Korea - even though this is one of those elements of economics that precisely coincides with fabled "common sense" (unlike, for example, the fallacy of the household budget analogy). What is stronger than common sense is nostalgia, which is why the belief that we can re-establish the trade ties of an earlier era, rather than make nice with the Chinese, is a more attractive proposition to those who advocated Brexit. This is usually expressed as a revival of the Commonwealth, but it's clear that what many advocates are lusting after is the revival of the British Empire, albeit in an informal arrangement in which the City and sentimentality are favoured over the military.This is not merely an attempt to ignore the tide of history, but a denial of the reality of the historic ocean, i.e. the nature of that empire.

The colonies were not the UK's chief trading partners during "peak empire" in the late nineteenth century. Continental Europe, then as now, was a more important destination for British manufactured goods, while the Americas were far more important in terms of raw materials (e.g. cotton from the USA and minerals from the South). At the apogee of 1910, the empire accounted for only 35% of UK trade, which was little advance on the 30% it accounted for in 1820. In part this reflected the very nature of empire: raw materials, like sugar, would be imported at low cost from the colonies, processed and then sold on as finished goods to markets, like Europe, willing to pay a relatively high price. But it also reflected both the distance of the colonies, which favoured high value / low weight commodities (e.g. Australian wool), and their sparse populations, which meant relatively smaller markets for British manufactured goods. If you were going to design an optimal trading area, one where "the sun never sets" wouldn't be your first idea. Proximity, after all, was one of the compelling arguments for joining the original common market.

One reason why the myth of empire trade has proved persistent is that it has, at different times, appealed across the political spectrum. David Davis may once have fancied himself as leader of the Conservative Party, but he is ultimately more the inheritor of Cobden than Churchill and remainers are unwise to ignore the resonance of that in the appeal to leave voters. Free trade was undoubtedly beneficial to the working classes in the nineteenth century, from the repeal of the Corn Laws to the gradual reductions in tariffs combined with cheaper transport costs as the century progressed. According to one study, "almost one half of the total real wage gains recorded in Britain in the late 19th century can be attributed to the impact of international transport cost declines". The consequence of this coincidence was that many Britons accepted the propaganda that cheap food was the product of empire. In fact, Britain's prosperity in the nineteenth century owed far more to the informal empire of the Americas and the willing market of Europe than it did to any special relationship with Australia or Canada.

While free trade arguments remained central up until the 1975 EEC referendum, thereafter the emblematic role of food in politics shifted to waste (butter mountains) and bureaucracy (apocryphally straight bananas), while the middle classes lauded the availability of olive oil in Waitrose as the advance of civilisation. We are now in the era of the Great British Bake-Off's Victoria sponge, which suggests a search for the comforts of old and a hankering after the supposed certainties of "our finest hour" (when the defence of a rotten empire was elided by the fight against Fascism), which you can see peeping through the demand for a "Hard Brexit". But this ignores the lesson of the tides, that our little world is inescapably influenced by others. This is the paradox of Brexit: a desire to take back control has resulted in us relying on the comfort of strangers, but in a far more risky sense than the Canadian Mark Carney envisaged.

24 comments:

  1. Could the impetus to build closer relationships with the white Commonwealth nations be less about trade, and more about returning those sparsely populated countries to their original function as Britain's overseas Lebensraum.

    Especially given how much of the reason for the salience of the anti-immigration campaign (in spite of the economic damage that hard Brexit would cause) is the widespread belief that the UK (or at least England) is an overpopulated country...

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    1. If Brexiteers were clamouring to emigrate, then you might have a point, but they're not.

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    2. They probably think it is the duty of those other Brits to emigrate, not them.

      If the Nazis had won their war in the East, I wouldn't be surprised if they had to forcibly uproot Germanic people in order to colonize their new territories, for want of willing settlers. Note that even the ethnic-German colonists in annexed Polish territory tended to come from the Baltic states or eastern Poland (Stalin's share of the Molotov-Ribbentrop spoils) rather than from old Germany.

      (Of course, Nazi colonization plans would have been a moot point in the end -- if the Nazis had managed to win in the East, then WWII would probably have ended in the nuclear destruction of Germany in the late 1940s. And once UK and US troops entered the former Soviet Union and witnessed the full horror of Generalplan Ost, public opinion would be that the Germans got what they deserved.)

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  2. Great post.

    I didn't dismiss the Leave voters' glorification of Australia and Canada and denigration of the EU as racism. I said it was tribalism - the desire to associate with people who are seen as "like us". I was debunking their nonsensical claim that the Commonwealth could substitute for the loss of the EU's single market.

    I don't agree that the enormous divide between the views of Remainers and Leavers about the importance of different markets is entirely due to ignorance of relative market size. Like you, I think there is an enormous amount of nostalgia for old colonial ties - a point I have made before in my writing about the emotional drivers of Brexit. I also think that the distorted perception of Saudi Arabia and Turkey is due to anti-Muslim sentiment.

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  3. I think that many Leavers adopt a kind of 'stab in the back' thesis. Britain could and would still have its empire and great power status if only lefties and liberals hadn't deliberately weakened the country. A bit like a less academic version of Corelli Barnett. As such, leaving the EU has provided Britain with the perfect opportunity. Like Trump and his claim to make Mexico pay for the wall, these people believe that other countries will be obliged to trade with Britain on British terms, just because we once had an empire on which the sun never set. That's apart from the people who would like to go back to the siege economy of 1940, saved from European domination by the trickle of goods from the Dominions...

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    1. Strange you bring up Corelli Barnett, as I was under the impression he believed Britain didn't dump its colonies fast enough (as well as believing that the welfare state made Britain's workers lazy).

      If they Leavers really do believe in this kind of stab-in-the-back myth then they're deluded: look at what happened to the Portuguese fascist empire! Perhaps though if the British Empire had gone down in flames like that, then the resulting Republic of Great Britain would have been a saner place...

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    2. Of course they're deluded.

      You're right that Barnett thought much of the empire was preserved on sentimental grounds and sapped national efficiency, I was using him as an example of somewhat who thought that the reason Britain had ceased to be a great power was because it had gone soft and wasn't trying hard enough.

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    3. Could it be argued that Britain was indeed stabbed in the back – by the very Dominions that the Leavers so glorify, when they rejected the notion of tighter union with Britain under an Imperial Parliament, and instead began focusing more on their own geographic neighbourhoods?

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  4. The uncertainty over what Brexit entails is interpreted by many as incompetence because it's thought to reflect the inability of the government to make up its mind. It would be better to see it as uncertainty over the nature of the UK economy

    We could do with more refusals to use the term incompetence when there are better ones available. It's become ubiquitous over recent years and gets whipped out in the most unlikely circumstances. You're waiting for the bus, which is late: the bus company are incompetent. (They may be, but you have no idea why the bus hasn't turned up. Cameron calls a stupid referendum and loses it, he's incompetent. (In a sense he is, but only if we extend that sense to mean anything which is an important mistake by a person in authority.)

    Even when it's used reasonably, we can generally get a better understanding of what's gone wrong by finding out precisely what kind of failing has been involved rather than using the label "incompetence". I think it's nearly always a barrier to understanding rather than an aid - and hence, in a way, sort of a case of structural incompetence in and of itself.

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    1. Use of 'incompetence' is a central part of attempts to depoliticise the political system. The idea is that there are certain people and groups of people who are inherently efficient and know what 'works'. Anything that goes wrong is not mistaken from the point of view of ideology or simply a natural human inability to be unable to control or foresee everything, but due to a lack of ability. The position thus assumes consensus and is perfect for an oligarchical political system. Practically anything that does not fit in to the consensus isn't just potentially 'incompetent', it is 'utopian' as well.

      Obviously very competent people are morally right even when they have failed in their own terms, like Blair and Iraq.

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    2. Indeed, the world can be divided into two kind of people - managerialists and incompetents.

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    3. Use of 'incompetence' is a central part of attempts to depoliticise the political system.

      Kind of, but what particularly interests me is its ubiquity, the ease with which people resort to it, and hence the way in which it must make sense to them in the context of their everyday lives. And if I have a theory, it's that people who are used to experiencing life as a consumer, as buyers of services, are relatively little interested in details, in the complicated processes by which things happen, and either receive a satisfactory product (which they define as competence) or do not (which they define as incompetence). And I think many people, whether they realise it or not, consider political events in a similar way.

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  5. If "distance matters", how come UK trade with the EU has declined by 20% (relative to its total trade) over the last decade, while trade with the rest of the world has expanded by the same amount? The cost of shipping stuff from China is less than 1% of total cost of relevant goods on average.

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    1. It would be interesting to see those statistics broken down into imports and exports.

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    2. Probably because the Eurozone is led by a mercantilist nation (Germany), which since 2008 has used its financial muscle to impose its mercantilism on the rest of the Eurozone?

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    3. The decline of the EU in the UK's trade flows (i.e. both as a source of imports and as a destination for exports) reflects two secular trends and one temporary policy.

      1. The rest of the world has been growing at a faster rate than the EU, which means that its share of global GDP is in relative decline. According to the ONS, it fell from 30% in 1993 to 24% in 2013. What's driving this is not just the historical catch-up of developing nations but simple demography - i.e. Europe's lower birth rate.

      2. Trade is in decline globally. This is less a reflection of economic underperformance post-2008 and more the inevitable adjustment to production patterns after the period of "peak globalisation" in the 90s.

      Supply-chains have been consolidated, so there is less physical movement of goods, and service provision has become more diffuse (e.g. firms that would once operate exclusively out of London now have branches in Paris, Berlin, Rome etc).

      3. The Eurozone has been pursuing deflationary policies since 2009. The painful downward adjustment of wages in the EU periphery (Greece, Portugal, Spain etc) acts to dampen demand for UK exports. This obviously amplifies trend #1.

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  6. Herbie Kills Children26 September 2016 at 19:01

    If there is one economic myth that needs to be exploded it is the belief that 'our prosperity' is built on 'their poverty'.

    This article could have addressed this damaging and erroneous belief.

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    1. Isn't Leninist communism founded on this myth though, the belief that capitalism in the Western world had avoided collapse because the Western working classes had been bought off with colonial loot?

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    2. Herbie Kills Children27 September 2016 at 17:53

      No I don't think so. I think the 2 things are technically different. To many thoughts to give a fully rounded argument but for starters:

      Theft is theft after all. So on one level some people have directly benefited from the crimes of colonialism. And this has a material impact on their world outlook, so it isn't a myth of Leninism but a fact believed by workers themselves. What they do not factor in is that they would be even better off if we helped each other and shared knowledge etc. So cooperation is better than competition.

      The point about our prosperity built on their poverty means something subtly different. Driving the rest of the world into poverty wold mean they do not gain the skills, time, expertise etc to not only develop themselves but also contribute to our development. This aside from the increases in efficiency that their development will and is bringing about.

      The critical point to make is always an assumption that the above factors in sustainable environmental policies, which whether they stay poor or develop will be a barrier.

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    3. Herbie Kills Children27 September 2016 at 18:36

      A further point to note is that ultimately the only people who really benefit from imperialism are that small % who sit atop the worlds population. For everyone else it retards their existence.

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  7. Your claim that "Distance matters as much as size, hence trade with Ireland (5.5% of the UK total) is larger than trade with China (4.5%)" is misleading, as it refers to UK exports – the UK imports about three times as much from China as from Ireland.

    Why does the UK export more to Ireland than to China? Proximity may be part of the reason, but the main reason is that China is mercantilist and Ireland isn't.

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    1. The post is about the prospects for "UK trade", which in political parlance means exports, not net trade. In other words, can we sell more goods and services outside the EU.

      Selling to Ireland is a lot easier for a variety of reasons, including language and culture, but the biggest factor is proximity. The reasons the UK doesn't export much to China are 1) distance , 2) average disposable income + the UK's preference for high-value exports (i.e. there aren't many UK goods that Chinese workers can afford), and 3) the Chinese state's determination to develop its own high-value industries (i.e. import-substitution is already targeting UK exports).

      You could attribute the third of these to a mercantilist mindset, but noth the other two.

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    2. The second is also partly down to mercantilism, as China deliberately suppresses the household share of GDP in order to accumulate foreign assets and provide cheap financing for industry.

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