Financial Globalisation Has Been a Disaster. Brexit Gives Us a Chance to Resist It
by Grace Blakeley
24 June 2018
Any attempt to build a socialist government in the UK requires opposing global financial capital, the interests of which are protected by international institutions such as the EU. Brexit provides the left with an opportunity to build a definancialised economy, disentangled from the international financial system that caused the crash of 2008, and free to direct capital away from useless speculation into productive investment.
Today, it’s easy to believe the movement against neoliberalism popped out of thin air. The election of Jeremy Corbyn as Labour leader and his strong performance in the 2017 general election took most commentators by surprise. The left, it appeared, was back, having spent decades wandering in the wilderness discussing nothing but identity politics and obscure Marxist theory.
But as most activists know, social movements do not just come out of nowhere. During the dark days between the so-called ‘end of history’ in 1989 and its abrupt recommencement in 2008 with the financial crash, the left was held together by a number of different campaigns, one of the most significant of which was the anti-globalisation or global justice movement.
Protests in Seattle and Washington brought together thousands of activists demonstrating against meetings of various international institutions like the IMF, the WTO and the World Bank. The World Social Forum was established as a counterpoint to the World Economic Forum under the slogan ‘another world is possible’. It was followed closely by the establishment of the European Social Forum, with the tagline ‘against the war, against racism and against neoliberalism’.
Ammunition to the barbarians?
This was all underway before it was acceptable for the commentariat to suggest that globalisation might not be all it was cracked up to be. A few economists – Dani Rodrik and Joseph Stiglitz most notably – pointed out that globalisation was not actually providing the kinds of benefits that its proponents suggested it would. These economists were particularly critical of financial globalisation, which had been unleashed by the gradual removal of restrictions on capital mobility, and which ended up causing a series of severe crises in Asia and Latin America throughout the 1990s and early 2000s.
Rodrik and Stiglitz were ridiculed by their peers for daring to suggest that allowing capital to flow seamlessly across borders whilst keeping labour relatively fixed might have some unanticipated consequences. Paul Krugman, current darling of the anti-austerity movement, argued that any critique of free trade or free movement of capital would provide ‘ammunition to the barbarians’.
This quote reveals that the arguments for globalisation were not then, and are not now, based on a coherent analysis of its relative economic costs and benefits. Instead, globalisation has been presented as an irresistible force of human progress. The integration of the global economy, leading to the eventual development of one or several global super-states, represents the apogee of the enlightenment project to bring together humankind under the civilising influence of the free market and liberal democracy.
This teleological narrative underpinned the efforts of the US, the UK, and other core countries to spread the gospel of financial globalisation around the world. As charted by Leo Panitch and Sam Gindin in their excellent book The Making of Global Capitalism, the liberalisation of the US financial system – and to a lesser extent the UK’s – allowed for the “[reconstitution] of the material base of American empire”. As part of the structural adjustment programmes of the 1980s, countries in the Global South experiencing crises as a result of interest hikes in the UK were expected to open up their economies to international competition in exchange for loans. In practice, this meant subjecting themselves to the voracious appetites of multinational corporations and banks, which duly defied the predictions of economists by sucking capital out of the Global South rather than channelling investment in.
In the face of bitter criticism from mainstream politicians, academics and commentators, the anti-globalisation or global justice movement was at the centre of the resistance to the attempts of core states and the international institutions they had created to further integrate the global economy. They did not have to wait long for the evidence to catch up with them. The financial crisis proved beyond reasonable doubt that financial globalisation has created far more losers than it has winners. And the empirical evidence that financial globalisation does more harm than good is now overwhelming. Several papers have shown that the alleged links between capital mobility and growth haven’t materialised, whilst others have found that capital mobility has increased the likelihood of economic crises. In the post-crisis world, financial globalisation is no longer defended by its architects: the IMF recently argued that capital account liberalisation increases inequality and reduces the labour share, and now advocates the use of capital controls in some cases. So where is the left critique of globalisation today?
We need to talk about Europe.
‘Globalisation’ is a nominalisation: a noun created from an adjective or verb. The nominalisation completely obscures the fact that ‘to globalise’ is a verb. And who has been doing the globalising? Largely the US, supported by international institutions like the World Bank, the IMF…and the EU.
As Panitch and Gindin point out, European economic and monetary union was integral to the development of financial globalisation, and this has to be understood in the context of the ‘continuing integration of European and American capitalism’. When president François Mitterand nationalised two of France’s largest banks and a number of large corporations, France was disciplined by the markets as capital flooded out of the country. Mitterand chose to take a deal brokered by the IMF and the EEC in which the franc was devalued in exchange for his commitment to keep the fiscal deficit below 3%. After this point, it became clear that European governments faced a stark choice between socialism and European integration.
As the debacles in Greece and Italy have shown, for eurozone countries, this is the choice that is still on offer today. Those countries like the UK that are outside of the euro do not face such a stark trade off, but membership of the single market does require states to accept all of the four freedoms – including capital mobility. Any attempt by a socialist government to limit capital flows into or out of the UK, or to direct capital into strategic investments a way that extended far beyond ‘correcting market failure’, would be resisted far more strongly than an attempt to limit free movement.
This was made abundantly clear recently, when EU officials told the Times they were far more worried about Corbyn’s post-Brexit plans for state subsidies and a return to public ownership than the Tories’ plans for further deregulation and privatisation. They merely highlighted the latter ‘because it is better public relations’ – as though the EU was a multinational corporation looking to clean up its public image.
The left was right to campaign against leaving the EU in 2016. Based on the tenor of the campaign, it was clear the Leave campaign would embolden the xenophobes and nationalists that exist across the class spectrum in the UK. This prediction was proven chillingly correct with both the spike in hate crime that followed the referendum and the movement that has emerged around Tommy Robinson over the last few weeks. The left should deplore and, if necessary, physically resist such acts of violent racism.
But fighting fascism does not mean accepting globalisation. The fact is, working class people are right to be pissed off about global economic and financial integration – especially those in the places that have been most ravaged by it. Financial globalisation has led to the concentration of capital in a series of financial entrepots, more integrated into the global economy than they are with their own countries. Rather than using this capital for productive investment, these centres have repurposed it for the kind of financial wizardry that caused the 2008 crash. London is in many ways the global financial hub par excellence, with the City of London the vampire squid sucking on the face of the global economy.
The left should be making a case for Brexit that involves resisting financial globalisation, whilst welcoming immigrants from the parts of the world that have been most ravaged by both colonialism and free market neocolonialism. This is not as hard a case to make as some people might argue. Indeed, there is evidence that anti-immigration sentiment – distinct from outright racism – is falling in the wake of the referendum. The share of people naming immigration as one of the top three most important issues facing the UK has fallen from 50% pre-referendum to just over 20% today.
And there is a strong internationalist case for resisting financial globalisation too. Just as capital is sucked out of the UK’s peripheral towns and cities to feed London’s insatiable appetite for cash, it is also sucked out of the Global South. Sub-Saharan Africa loses three times as much in capital flight each year as it gains in aid, and much of it is channelled (often illicitly) through banks in the City and into London property, or the UK’s vast network of tax havens. Unfair trading practices – often supported by the EU – have subjected subsistence farmers around the world to the caprices of global commodities markets, whilst denying many states the opportunity to industrialise by protecting their infant industries.
A post-Brexit economy.
Brexit should be used as an opportunity to move towards a system in which capital is embedded in national economies rather than constantly moving around the globe. Alongside reducing capital mobility and the size of our finance sector, this should involve a radical programme to transform ownership and investment. At the local level, inspiration should come from the experiments in community wealth building conducted by councils such as Preston. At the national level, any socialist government must consider radical propositions to transform ownership and investment – through, for example, the creation of national and regional investment banks, or a Meidner Plan for the UK.
Whilst state intervention as a passive shareholder is perfectly permissible under EU law, interfering with capital mobility by directing capital through industrial policy, public loans, and strategic investment, is not. Any attempt to limit capital flows, either through direct restrictions on capital movement, or through a prohibitive tax on financial transactions triggered during a crisis, would also be interpreted as an infringement of the four freedoms. What’s more, the implementation of EU law depends upon EU jurisprudence – international law, we must remember, is socially constructed and therefore strongly influenced by existing power relations. The aforementioned comments of EU negotiators to the Times suggest that there would be strong resistance from Brussels to a project of socialist transformation in the UK.
Leaving the EU could provide the left with an opportunity to build an economy that does not rely on capital extracted from the rest of the world to ensure growth and prosperity. If the UK could build such an economy outside of Europe, it would act as a beacon of hope to countries like Greece and Italy, currently struggling under the weight of the EU’s neoliberal technocracy. The British left has the opportunity to create a significant dent in the armour of financial capital by showing, once and for all, that there is an alternative. We must seize it.