Theresa May’s Dangerous Game of Smoke and Mirrors

Theresa May and her negotiation team for the post Brexit deal, have played into their own presumptions about the European landscape, and are now in a tenusous and even dangerous game of smoke and mirrors. On the one hand they believed that they could get what would be a uniquely favourable deal while on the other they want to keep the idea of control and sovereignty going with the UK public.

Now that it is clear there will be full membership until that time, there is unlikely to be an interim deal outside membership of the common market. This is mediated in deals such as the EEA deal and the deal between the EU and Switzerland, ( or rather deals) which is kind of on the edge of the EEA agreement with some opt ins and some opt outs (the “guillotene” opt out). The Swiss pay, but not very much, and the Swiss have like the UK, a negative balance of trade with the EU ( well above board that is to say, excluding those bank accounts I suspect).

The crux of the matter with Brexit is why people voted against the status quo of the EU set up. Firstly there is a large latent British Nationalist resentment to the EU, and of course the conservative eurosceptic movement predates the 1975 referendum. It is ironic that so many UK voters are unwilling to give away some powers over decision making to a body which is electable and sackable, the Council of Europe and the Commission, can vote MEPs  into the Strasbourg parliament, have significant influence by political flavour in Westminster then and of course key vote and veto over issues, while on the other hand the UK has hereditary peers no one voted for, and peers less reflective at any point in time of parliamentary majority, and that by a system which allows for abosolute majority rule by a voting minority as small as 36%.

In a nutshell, people kind of understand and relate to Westminster while it is very hard to relate to the various bodies and structures of the EU.  You need a degree course you could say to understand it in depth, or to track its developments in directives. Also the UK print press is very biased towards Eurosceptic owners who have done little to pervay the actual (and often very dull) functioning of the EU insitutuons and policy making.

There is no point in beating about the bush here, straight bananas or not, the biggest issue for ‘Little England’, the counties and the regions was immigration. There was a real resentment in some poorer post industrial and even rural agricultural areas to the influx of in particular, easter EU labour. In some areas Roma people, ‘gypsies’ from Romania and Bulgaria, were experienced as a real problem in terms of crime and littering. So for example rural Boston and industrialised Sunderland voted resoundingly Leave.

This was very much the Appeal of Trump too- in fighting back against the exposure US workers have had to globalisation in the Neo Liberal epoch of free trade with essentially slavery and abject poverty as the lowest common denominator in the new, global labour market.

FOM – Freedom of Movement of People- The Biggie!

In the UK then around the non metropolitan and less cosmopolitan areas, the vote was against the influx of labour and the perception that refugees were going to come in and be looked after by the state, while the unemployed in the UK are in a tenuous financial situation and many unskilled workers are in marginalised. That was the over riding reason and perception in the UK, no matter how much the UK labour force was willing to take up these jobs or qualify themselves for the traditional “trades” the Poles seem so adept at doing on the cheap.

So the UK is taking back control, like Australia and NZ has done. However we are not in a ‘rich island in a sea of poverty’ scenario in the UK. We are in a very close proxikity to our richest markets, and a huge number of qualified workers. Do we need this though?

The fundamental economic argument for FOM is based on economic doctrine, and that crosses over into Neo Liberal thinking which has influenced free trade and of course very much of UK policy for a ‘flexible’ labour force ie management have huge power over most ordinary workers to determine terms, wages and working conditions and also to dispose or hire labour with extreme ease. The EU want their skilled and unskilled workers to be able to move around in order to fill holes in some parts of the economy, such as the low birth rate in Germany, the ageing population in the UK and so on, while that alleviates unemployment in other areas. Generally speaking on a 1950-2007 basis, this means that the few percent of highly qualified can move to the best jobs, and mulinational firms can move them or recruit with ease, while at the other end of bin lorry drivers and ‘green ladies’., the marginalised few percent in one land could up roots and find a new economic existence elsewhere.

However that was prior to the 2008 crash in the global credit system, and the exposure of corruption and un mitigated borrowing in countries like Spain, Portugal, Ireland and of course Greece. Also we had the inclusion of several of Europe’s poorest countries including Poland, Bulgaria and Romania. In these areas we now do not just have a fiddling few percent who are in poverty, unemployment or underemployment, we have a mass demand for a way out and to a better economic standard of living via emmigration. We are back in the mid late 19th C and early to mid 20th C situation where the USA was the sponge for all this.

 

The Brexit Team’s Philosophy?

Will the UK get then an Aus/NZ, Canadian, and US style points system and be able to hold back the unprecedented immigration demand at the channel?

Now we come back to the glowing example of ‘free trade’ from near neighbours,. The Swiss model is as holey as an Emmental Cheese though – it allows for a kind of double think on freedom of movement of labour. In effect the Swiss couldn’t quite get soverieign control of immigration even though a slim majority of swiss voters said Non/Nein.

Switzerland is a bit like Norway in that it is fiendishly expensive to live almost anywhere, so to some extent they have not been exposed to the level of immigration the UK has, which is around a net immigration of 5 to 6% according to various sources, and if it continued at 2014-2017 rates then it would reach 10% of the UK population. This while unemployment and underemployment affect as much as 15% of the national economy and more than half the work force in some poorer regional areas.

 

Also May has a terrible dilema because they are keen with trade deals with large emergent economies, which are better than those the EU actually has. In particular this means India, Indonesia and China. India has already flagged up a requisite for more students and more work experience to be available in the UK as any part of a deal, and it has a population several times over that of the whole EU from a far lower standard of living base. The US will also want to secure greater freedoms for its management and investors to roam the UK on easy to get work permits with little administration and no tariffs.

May has already stated the UK will be free to get all the talent it wants to without the burden of unwanted immigrants. However ‘talent’ to the City of London and to a builder in Boston, Lincolsnshire, are two different things in reality, and will a builder presented with a big contract and a shortage of labour want to take on more UK nationals as apprentices? The rush to university education has caused a labour shortage and inflation in house building which is only partially plugged by EU workers. Now we come onto the thorny topic of inflation.

Bargaining Chip 1 : “Free Trade or We’ll Burn Your BMWs!!”

THis is a major and oft’ regurgitated campaign philosophy behind the Brexit stance. That the UK is so big and important a partner, the 7th biggest global economy, that the EU will be forced into accepting a free trade deal without significant membership payments or other concentsions to policy. Picking this argument apart reveals the major challenge of Brexit.

Firstly let us take a look at who really loses out here in terms of BMW. 17% of Bayern’s production goes to the UK market allegedly, and they wont want to risk losing that! Well in fact the UK makes a lot more money out of those right hand drive cars than BMW and Angela Merkel. The UK has high car tax and VAT on purchase, the dealer has quite good margins for the semi luxury marque, and then there is annual road tax and that very, very costly servicing in the main dealers to keep that “FSH” going and hold up resale value. All that is more income for the dealers and the exchequor than Bayern and Berlin,  and probably sustains more jobs in the dealerships and via the tax revenue the rather over priced teutonic metal boxes generate.

Bargaining Chip 2 – You Need Us As Much As We Need You

Of course there is an inter relation in the economies. However the UK actually has of course a negative balance of trade, so it needs the EU more than the other way aroudn as a trading partner for everything from fresh produce to car components.

Disruptions to this are what should be avoided because quotas will mean mandatory customs checks, ques at Calais and so on, while any tariffs will hit the UK consumer and factory first and foremost, only then to have factory exports hit again by tariffs on the other side.

In terms of farm produce we also have to look at the success of UK farmers, aquaculture, fisheries and food processors to go after higher value added markets with better quality, higher margin produce. The UK market is not big enough alone for these, and many are too persihavble to realistically sereve the cpomplex supply chain in the USA let alone rweach china in time.

Bargaining Chip 3 – We are Not Switzerland, or the Small EEA Countries, We are Great Britain! We are Big!

The Uk is now the seventh biggest economy in the world. It has as known a negative balance of trade with the EU, and much of that is food and agriculturally related, plus those BMWs and other more expensive end of the market cars.Surely the UK is such an important partner that it should get special leverage over the EU?

Well no, the EU exports more to the USA and China than to the UK, yet has reached no real deal beyond the WTO agreement base line with either of the world’s two biggest economies.

The proximity of the UK to the EU is a double edged sword to argue with, when you are on the other hand trying to talk up trade deals with places that take weeks to ship to. Fresh lamb and car components in just in time supply chains go out the window with that kind of trade if you dont use air freight, which is vastly expensive compared to containerised shipping.

Bargaining Chip 3 : We Have 3 Million of Your People as Pawns in Our Play!

Well that is true, but what about the real number of UK people now resident abroad ? The UN quotes a meagre 800,000 but other sources seem to suggest it is over a million. , with up to a half a million in Spain alone, mainly pensioners. Some are in a greay area too, living partly here and there either as pensioners in Spain or financial wizards in Frankfurt.

The EU though have already laid out a precondition about being reasonable with each others’ people such that there interests are put first and secured before any trade deal details are even mooted.

Kicking out 3 million people, mostly adult workers, is a very bad idea for the UK, because it will lead to an immediate skills gap in unknown areas. This will in turn fuel inflation which we can start to smell burning away not only with the low pound, but with tariffs, quotas and supply chain delays.

 

Why Brexit In the Short Term May Fail To Live Up To Expectations

Inflation

The UK are already facing a major inflationary push due to the devaluation , aka crash, in the pound, which some have even said is a price worth paying. But retail price inflation will hit the consumer in those few precious saving, entertainments and holiday monies they cherish so much. Wages are stagnant, and there is no actual indication that 3 million workers will be sent home over La Manche, thus instantly boosting pay in the UK. That is a simplistic la la land solution which unfortunetly, has been bought by an expectant public.It is no quick fix.

Here we come to those Polish brickies. We could see inflation in the housing market caused by a labour shortage. Also those tariffs, quotas and queues at Dover and Calais’ customs check points, all that extra admin and hassle and delay. A weak pound further exacerbates the inbvalance in trade of fresh produce. Perhaps not many reading this remember the cheap offering of fruit and veg in the winter in the early 1970s and before. We don’t grow oranges or mid winter Pak Choi in the UK.

 

Instability in the Housing Market

There is a different underlying time bomb-combi for the UK- an ageing population and low productivity in service industry. Some city traders were quick to note that a long term brake on immigration with current UK birthrates as they are, and the demise of the vangaurd of the baby boomer generation only a decade away, would mean that the UK population would start to decline given no net immigration within a few years. Short enough a time horizon to affect investments in real estate owners, developers and building firms. This has already happened with the worst leveraged firms being punished on the LSE.

UK house prices are on a salary escalator, such that capital enjoys a leverage of up to four times % rise from the meagre  wage rises typical in the UK over the last two decades,  and also this is linked by a similar leverage to rising population as demand increases too, it feeds this multiple. Supply is limited by cost of real estate in areas with jobs, in turn controlled by a very few land owners in fact and many virtually corrupt councils, and by building costs.

With however little rise in average pay for employees the last decade, this means that housing has been eating more of family income, and this is being fuelled perhaps by immigration more than anything else. Buy to rent amongst the indigenous baby boomers as an investment is also a major factor it has to be said. The whole house of cards, a kind of inverted pyramidal accumulation of wealth, could collapse if the rug of new population is pulled from under its feet.

Two things are very unpopular at the ballot box: Inflation in CPI and negative equity in property.

Disruption to Manufacturing

There may well be larger disruptions to manufacturing due to a more heavily administered supply chain, as we may experience in fact with Norway and Switzerland today. This puts in particular car plants in the UK at risk.

Those same Tories who have long liked the demise of metal bashing to favour of nice clean money pyramids driving the country, are now saying all this is a great opportunity for metal bashing in the UK, but of course it just inst because they dont like investing in it.

Most of the UK car producers are not listed in any major asset way on the LSE. They are global companies who exploit the nice, short supply chians in the EU. In fact the threat to many UK comnponent manufactureres is worse than any potential gain in domestic demadn,  as in the same way  for those high value added food makers, they need the continental EU market to make their economies of scale work for them.

 

Location-Asset-Trade Issues and Skills Gaps for Multinationals

This is another big issue particularly in the finance industry, but also in high tech like pharma and biotech, aerospace and good old metal bashing indeed whcih is actually pretty high tech by in large these days anyway.

Banks and other financial institutuons are being forced into realising they must have an EU base which reflects their assets and trade, and they must be able to service their continental clients under EU law in future. Just this week Lloyds (insurance) announced a new office in brussels for regulatory and market reasons, to pre-empt the need to do this when the axe falls over the white cliffs of Dover.

This week too, the merger between the major German and the London Stock Exchange (LSE) was finally blocked due to brexit.

Dublin, Frankfurt and Paris are all vieing for position in getting not only this fall out by necessity, but in attracting a new centre of gravity away from the great mamoth of the City of London. Its’ excellence will remain, and in fact the majority of its listings are now not for assets and trading values in EU countries, but for EU investment within EU laws and environment we will see investors choosing the continent. There may be a divergence the of course in policy, and the EU may choose to finally take issue with ‘profit exporting’ and taxation point cherry picking, by rounding on the UK and Switzerland in particular, now free from the major Neo Liberal capitalist influence the UK has cast over the EU since Margaret Thatcher wielded her handbag in anger there in the 80s.

The EU is not About to Collapse and Revert to the EEC or  Big Trade Deal

The author believes quite strongly that the ‘Hard Brexit’ stance was taken in the summer of discontent across the EU, when the populist right were on the rise. I beleive that the Tory party really did see the unravelling of the EU as a central, semi federal body in the face of movements in Hungary, France, Austria, Holland and Germany. This was always UKIP’s greatest bit of wishful thinking and propaganda.

A recent far right commentator on Twitter commented that ” We lacked  a terrorist attack” to bring out the Wilders vote, which puts their position of fear into the limelight. What about the world war? How many millions died then? It was fascism which caused that war, the very thing UKIP and the far right want to bring in, fascism via the ballet box, just like the twice elected Adolf Hitler who was popular in his time.

Unfortunetly for ToryKIP as they are now in parliament, the populist movement prove not to be very popular after all. Wilders and Le Pen have scored smaller hits than though, and both will be marginalised when it comes to real power. Le Pen will face round two, and huge tactical voting from a large left and centre right majority.

The EU, or rather the EEC, has never been just about being a trade zone. Getting back to the old days when it was is just a phallacy. It has always been political and about the larger picture of securing peace, democracy and the rule of law. In outset it was about curbing the powers of Germany (ironically) to command enough resources to become a ‘Whirmacht” ever again, and the same for Spain, while providing trade and democracy against the Iron Curtain.

To the ends of peace, welfare and nutrition, the EU is the largest success in the history of civilisation. It is not about to unravell or revert to a loose set of nations with special trade deals around some back room, non democractic corporate agenda.

EU Regulations Are Not As Bad or Silly as the UK Punter is Lead to Believe. And They Are Going to Be Living with Them for A Long Time To Come

Much of what the EU actually legislates on is pure common sense and about commons standards on a common playing field. There are political problems, conflicts and of couse ther whole issue of the CAP and CFP in farming and fishing respectively, but you do not hear many consumers in the UK complaining about variety year round, safe food or affordable prices with modest inflation prior to the pound’s crash.

The disgust at the bent banana, how silly the EU is. Well why not read uip on those class A top quality bananas, not grown anywhere near here, but requiring grading and delivery to standards for restuarants and finer green grocers back in the main EU countries. European Norms form the international standards organisation (ISO EN) are often very tedious, but they ensure that a manufacturer can make one product now for the whole of the EU. That a grower knows what is considered safe practice in horticulture. That travellers know their public transport vehicles is equally safe across the EU. . CE marking which stems from the EN system, aids in this, and is not about discrimminating against British jam, it is about allowing it to be sold anywhere amongst 500 million consumers.

The first and most costly however of the EU regulations are quantified by the government but criticised by a good deal of statistical and psychological ‘framing’ by mid to far right ‘ think tanks ‘ and ‘institutuioins. For example the very obviously politically paritsan and misnomer delux, ‘Open Europe” claim that there is no benefit from these costs and they are just a bruden. It quotes the big nasty figure, £27 billion of costs, wihtout putting it in much context of how that expenditure results in wider trade opportunities for the UK, or what benefits these have, nor if an independent UK may have wanted to or had to accept these as international standards and methods., “Burden from the EU” is used to describe these administrative and quality compliance costs, and they are only able to quote the ‘cost’ of the working hours directive, which is put byu someone somewhere at £4.1 billion to uk industry, who would perhaps rather have burnt out workers on the sick from 60-70 hour weeks?

Breitbart, that well known source of far right propoganda, delivers us though detail on the top costly directives so hated by the Brits and so holding back the UK economy.

The top five costliest EU-derived regulations in force in the UK were:

1) UK Renewable Energy Strategy cost: 6.6 billion a year;
2) Capital Requirement Directive IV on financial institutions: $5.9 billion a year;
3) Working Time Directive on labor standards: $5.9 billion a year;
4) EU Climate and Energy Package mandates: $4.8 billion a year; and
5) Temporary Agency Workers Directive on welfare: $3.0 billion a year

Firstly ( and No 4), renewable energy is a major job creation scheme, especially in Scotland, and it aims to reduce emmissions and post oil and coal, secure affordable power in future. It is a cost of a political consensus on greening, which even the majority of the Tory party have embraced the science on. In terms of no.4, it also secures greater energy efficiency in machinery, housing and appliances such that we can live in a world with finite fossil resources and tackle the spectre of global warming given the benefit of any other doubt, mostly from oil magnets like the Kochs ( good pals of Trump, nasty types)

Secondly the Capital requirments act has been laid down in the first place by the IMF and interpreted by the EU directive as a common, level playing field such that banks avoid the huges over exposure whcih created the credit crunch and crash which cost a whole lot more to the UK economy than nay EU regulation did or ever will. So they were global, and ok the UK could have interpreted them differently but would need to have landed huge ‘costs’ on banks ie having assets to cover liabilities.

Now we come to what Tory MPs are jumping up and down with joy about. Removal of EU labour laws: maximum 48 hour week, the recruitment and bemmanning directive and not listed here, but on their list to get rid of, the right to family friendly (reduced) hours and maternity leave, with paternity leave on the way too.

It seems that poor  old UK employers can’t afford to give their workers time off for their families during week nights, nor job security, and nor the ability to plan a family either with matiernaity leave paid for. Pensions will also be in that list, with mandatory employer contributions being so erksome, employers having to spend on the future rather than having money today for shareholders.

The UK Workers’ Standard Of Living

– A Malaise Nearing a Decade –

Why Isn’t Capitalism Getting the Blame?

The far right and rich establishment very much want to keep this flexibility going and of course extend it post brexit (see below) because it allegedly keeps productivity high. Which it just doesn’t, the UK languishes in the lowest productivity of the G8 and possibly G20 nations and this blame has been put on the low level of skills needed for the consumer service and retail part of the economy which is so predominant now at over 50% GDP. In effect the UK has shifted subsidising failing manufacturing industries directly, to subsidising marginally economic consumer and business service industries with cheap labour, via Gordon Brown’s ‘Work Should Pay” top up policy, and a long term move to temporary, part time work and low motivation from employees.

The issue is that Neo Liberal Capitalism is fundamentally against the improvement in pay and conditions for ordinary workers. The epoch is the reverse, it has marginalised the unskilled working class completely, and transformed the middle class administrators and technologists into 60 hour week slaves to the machine. It functions by trickle up, not down, with a blind eye to the real inflation ofin the cost of living coming from the expanding cost of putting a roof over your head, anywhere there is actually work. This is the system which has failed workers because as in the UK, it has resulted in a loss of focus in productivity and skills gains and a commoditisation of University degree education in business, public service and even science and engineering.

The great promise of increased wealth for all via strict CPI (consumer price index) control, private sector growth in the economy, global free trade and deunionisation has come to nothing for the average skilled worker in the west. They have been cast aside by the finance crisis. A pyramid of false credit based on no real value, no gold standard, just the value of real estate. Corruption on a grand scale, deceipt at every street corner lender.

It was clear to the UK establishment that Eurocepticism was a way of diverting attention from the malaise in the economy and domestic labour policy, in offering a simplistic, market driven solution – removing foreign labour. This was also seized upon in the economic policy vaccuum in the USA but not by the establishment, by a nouveau riche interloper, Donald Trump, who could string together some ‘outdated’ protectionist, nationalist policies and offer the coal and oil fields new life he could swing in and capture traditionally democratic and non voters to swing the hole thing his way.

 

Neo Liberalism has failed for the ordinary and even relatively highly skilled worker, in that they are now workiing (in the west) more hours for a lower standard of living, and giving more money to capital via real estate than ever before. Also they are using more consumer credit to help fuel the big behind the scenes banks, who have invented a credit system which is just a castle in the clouds as far as relation to actual liquidatable assets and pay back potential. Neo Liberalism has been a great success for capitalism, allowing for the accumulation of most wealth in fewer hands and those with capital down the feeding chain, the ability to leverage more money out of their communities than ever before, while those communities fail to have higher living standards and many unskilled workers fall into a status of poverty akin to third world conditions.

Capitalism isn’t gettting the blame because capitalism owns much of the media and many of the politicians in power, and can get a message out that suits its ends, and organise itself, behind closed doors, away from any demcratic influence. It has found new techniques, in particular ‘framing’ for creating powerfully persuasive propaganda. It has seized the opportunity to sponsor a new wave of fascism via the ballot box with these pyscholigical tools over enough of the less educated masses as to be able to actually get near to seizing power and overturning the rule of law and democracy.

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