A pro-Brexit protester demonstrates in Whitehall, central London, December 6, 2018. REUTERS/ Toby Melville
The rift between EU Remainers and Leavers in the referendum vote of 2016 has stuck. It has split Britain into two camps with polarized identities that outweigh traditional party attachments. The divide stems from profound economic, generational, educational and cultural differences.
Broadly speaking, Britons who backed staying in the EU were better-off, tended to be younger and well-educated and were more outward-looking. By contrast those wanting to leave were worse-off, older and less-educated, and prized a traditional sense of British identity, making them particularly vexed about immigration. These divisions aligned with a regional gap between prosperous London and less affluent parts of England, especially in the Midlands and north.
At first sight May’s deal appears to promise a form of reconciliation since it offers something to both Leavers and Remainers. The free movement of people from the EU will end, but the government intends to strike a close economic partnership with the EU. Yet this compromise will amount to little as long as the underlying divisions separating Britain’s two tribes persist.
That will happen unless the government responds to the real grievance of Leavers: that the prevailing free market model no longer works for them. It is no accident that Britain as well as the United States has experienced a fierce populist revolt. Both countries have been cheerleaders for economic liberalization since the 1980s under Ronald Reagan and Margaret Thatcher.
Freeing up markets made sense in Britain when large swathes of the economy were in public hands and there were too many shackles on private enterprise. But the swing toward unleashing market forces without providing sufficient help for those struggling in the face of global competition has gone too far. Now the British state must change its spots again.
That does not mean a futile attempt to retreat into a fortress economy and to raise the drawbridge against migration. Rather, the government needs to become much more proactive in defending the economic losers from globalization as well as promoting the winners.
One priority is a sustained effort to promote manufacturing, which provides well-paid jobs and is especially important in the Midlands, the north of England and Northern Ireland. For too long the British government has neglected a sector that plays a vital part in less affluent regions. Astonishingly, a country that was once workshop to the world has run a deficit in goods trade (which is dominated by manufactures) since 1983. Britain’s industrial deficiencies means that it imports far more in goods than it exports, creating a shortfall in merchandise trade of 6.7 percent of GDP in 2017.
An even more important reform is to tackle underlying disadvantages in human capital. Revitalizing vocational education, a perennial Cinderella in Britain, is essential to overcome deficiencies in skills. The government has long prioritized universities, which in recent years have received a fat bounty through higher tuition fees, paid from student loans financed through public borrowing. In stark contrast, the government has neglected the further-education colleges that provide courses in specific occupational skills and cater to adults who did less well at school or need to catch up later in life. Yet these institutions are indispensable for those who find themselves on the wrong side of the economic line.
Above all, Britain needs to make a determined effort to rebalance the economy away from London and toward the less flourishing regions outside the capital and the South East. The longstanding regional gap has widened since the financial crisis as the London economy outpaced the rest of the country during the recovery. If the struggling areas outside the capital’s prosperity zone are to catch up, they need more political power and resources in order to build up local infrastructure and to boost skills.
Under May the government has been edging away from free market doctrines as it tries to remedy the economic damage already inflicted by the Brexit vote. It has drawn up an industrial strategy, an approach abandoned by Thatcher as a fruitless attempt to pick winners. The May version seeks more sensibly to bolster the underlying sources of economic growth such as higher investment in R&D and improvements in infrastructure.
The government has also recognized the need to improve vocational education. And it is backing regional development through projects such as the “Northern Powerhouse.” This aims to raise productivity across the north of England, a regionwith over a quarter of Britain’s manufacturing output.
The snag is that a more proactive British state will need to spend a lot more on such initiatives if they are to make a mark. But, as official projections issued in late November demonstrated, Brexit on May’s terms will make Britain poorer than staying in the EU. That in turn means that the tax base will be smaller at a time when even more compelling demands on the public purse are rising as an ageing population pushes up spending on health, pensions and social care. Rubbing salt in the wound, Brexit entails leaving the European Investment Bank, an important source of finance for infrastructure investments.
May is right to say that the country needs to come together. But she is wrong to argue that her deal will achieve this. It has a fatal flaw. By harming the economy, it will make it harder to stump up the public resources needed to tackle the underlying divisions between Leavers and Remainers. The paradox of Brexit is that the best way to mend the rift it exposed is by staying in the EU.