We’ve done it before. In September 1931, faced with a 25% pay cut mandated by government austerity, the Royal Navy mutinied at the Scottish port of Invergordon. Sailors on HMS Rodney refused duties, dragged a piano on deck and sang a medley of pub songs. Other ships followed. It was not exactly Battleship Potemkin – but it went on to destroy the economic order of the world.
A run on the pound began, forcing Britain to become the first major country to leave the gold standard. One after another, states abandoned gold and went for economic nationalism. The effect on Britain was benign; interest rates were slashed, austerity eased and – with the pound devalued – exports recovered. But the flight from gold killed the global economic system.
Today, the event we are living through is just as momentous – but with more tabloid lying and internet memes, and bleaker economic prospects. Brexit, looked at through the lens of history, signals the high-water mark of neoliberalism – the system of freemarket economics and global trade that began in the early 1990s. It was triggered, ultimately, because enough people associated their own poor prospects and economic hardship with a treaty coordinating the economic policies of different countries.
The impact has been immediate. Almost unnoticed amid the post-Brexit hysteria, French president François Hollande announced his intention to veto TTIP, the free-trade treaty between the EU and the US. For clarity, that means it is dead.
The danger is that there will be more retreats from transnational collaboration. When policymakers study the period between Invergordon and Hitler’s 1933 election victory, what they learn is this: in the 1930s, those who abandoned the global system first recovered first. The most depressing graph in economic history is of unemployment in Germany after Hitler takes power. It falls from 5.5 million in 1932 to half a million six years later. It shows the nationalist right has answers that, in the short term, often work better than those offered by democrats and globalists.
If you want to understand the hysteria among globally minded, progressive people in the UK, it lies in the realisation that not only has our relationship with Europe been severed, but that the outcome is a leap in the dark.
The Tory right – unlike Stanley Baldwin and Ramsay MacDonald in the 1930s – has no John Maynard Keynes to call on. It has only the promise it has made itself: that lots of countries in the world will do swift, bilateral trade deals and that – somehow – Britain will end up more global, more outward-facing, than when it had a mere 500 million people to sell to.
This is an illusion. It will not happen. And in their hearts, many of those who voted for Brexit do not want it to happen. Talk to them: they want less free markets, less migration and less open trade. And, unlike in the 1930s, they have newspapers who represent them and talk radio stations to wind them up to fury. So the real nightmare scenario is not Brexit – it is what happens, socially and economically, when Brexit does not work.
What happens when the investment banks move to Frankfurt, the carmakers to Hungary, the offshore finance wizards to Dublin, the tech companies to newly independent Scotland? What happens when, instead of Poles, it is poor, white English people herded into the polytunnels of Kent to pick strawberries for union-busting gangmasters?
You cannot project the story of the past three days into the next three years, but the pattern is chilling: cancelled orders, cancelled contracts, the potential exclusion of UK universities from multibillion European health and science projects.
Since Lehman Brothers collapsed, it has been obvious that if we want to save globalisation, we have to ditch neoliberalism. We have to find an alternative economic model that promotes growth, wellbeing, rising wages and rising social mobility for the people of the developed world. The question every pro-global policymaker in Britain – including the Tories and their appointee Mark Carney – has to deal with today is how much of globalisation we can save during the Brexit process.
If there is a sense of flux in British politics this week, that is because all the forces are aligning towards two antagonistic projects: those who want to intensify the economic dislocation, and those who want to minimise it. I am in favour of minimising it, and there is a very clear vehicle through which to do so: the European Economic Area – the single market in which Norway and Iceland participate. In the battle to succeed Cameron, the first question for the Tory party (and Labour) should be: EEA or not?
An application to remain inside the EEA should be the touchstone of all those who want Britain to save globalisation while ditching neoliberalism. It keeps us in a single market; it forces us to define our new immigration policy inside the EU free-movement laws, not against them. We could fight for – and gain – considerable flexibility on which single market rules we follow, and for a timeout or partial opt-out from free movement. We might, of course, fail. But it is worth trying.
The alternative is the “hit and hope” strategy esposed by Michael Gove and Ukip. It will not work – and here is why. In the 1930s, the sudden flight to national economics produced losers but also winners – because there was growth available to compete for. Today, we are facing a much deeper crisis. Global stagnation is what central bankers fear, as value is sucked out of the market system by automation, collapsing commodity prices and zero interest rates.
In 1931, the Bank of England could hike interest rates from 4.5% to 6%. This week, if it moves at all, the Bank will have to slash them to zero. That is the difference between possessing a well-stocked arsenal and a last bullet.
In the 1930s, economic nationalism meant stealing what growth there was from a rival country, or empire, through aggressive state intervention and trade rivalry. But we have no model, and no case study, for what happens if you pursue economic nationalism when there is system-wide stagnation. That is, where there is a guaranteed negative sum at the end of the game.
So forget the ideological flimflam. It sounds utterly boring, compared with the rhetoric of race and nation coursing through pubs and chatrooms, but the only question the leaders of British parties have to answer now is: will you strive to keep Britain inside the EEA or not?