Labour's drift to isolationism in Europe

Labour's opportunistic stance on increasing the EU budget reflects wider problems on the British left with regard to Europe. However tainted with neoliberal doctrine, the EU remains our greatest hope for contesting the triumph of the global market.

The Labour Party’s decision to join rebel Conservatives in the Parliamentary vote over the European Union budget probably brings nearer the day when the UK leaves the Union altogether. Labour has now joined the ranks of those who see no purpose in Britain’s EU membership other than to provide nationalistic battle cries for electoral consumption. ‘And a good thing too!’ many will cry, not just right-wing xenophobes but a growing number of liberal, left-of-centre people, dissatisfied with the increasing neoliberal drift of both EU policy and the activity of the European Court. They are wrong.

Outside the EU, Britain – or any other European state - would not regain a 19th century dream of absolute sovereignty, but become even more prey than at present to the demands of global corporations and financial institutions. While democratic national politics remains in its rigid territorial boxes, global capital flows flexibly, adopting whatever shape it needs to extract the best deals out of locational decisions, inviting different governments to engage in beauty contests to attract investment and offer generous terms over tax and regulation, happy to have them compete among themselves rather than join forces. True, this does not always mean that nation states must engage in a competitive race to the bottom. There are many different races to gain the favour of international investment, and for some important advantages in offering high-quality infrastructures and labour forces; if not, the German and Nordic economies would not do so well. But there are certainly some races to the bottom, menacing welfare states, taxation systems, and labour and environmental regulation.

Only one country is in a position to take up single-nation stands against global capital and that is the USA. But the most important political fact about US politics in the early 21st century is that its governing institutions are almost totally dominated by corporate lobbies. Even if the Democratic Party can win presidential elections with such a figure as Barack Obama, it is itself heavily dependent on funding from corporations and super-rich individuals. As for Congress, it is even more in the hands of corporate funders. It was notable how President Obama’s attempts to reform the financial sector and to introduce public health, two fundamental planks of his original platform, were hopelessly compromised even before they were implemented, by opposition running all the way from advisors of financial corporations in the White House itself to corporate lobbying in Congress. The USA will always be in the forefront of moves to prevent action to regulate irresponsible banking or to save the planet from environmental disasters caused by profitable economic activities. It will continue to be a pioneer and world leader in the abolition of the welfare state, the erosion of labour standards, and attacks on the ability of trade unions to represent workers’ interests. It will continue to have the highest level of inequality in the advanced world, a level that now rivals that of many third-world countries and is still growing.

Now, one must not be starry-eyed about the EU. The corporate lobbies crawl all over it too. In particular, the Commission lacks the expertise necessary to produce adequate financial regulation, and the great banks have been only too happy to come to its aid and provide policies for it. The Commission is also desperate to appear business-friendly and connected to society; this reinforces its eagerness to listen to what bankers have to say. If it continues its present drift, the EU is in danger of becoming little more than the midwife for the neoliberal deregulation that would be imposed on us all anyway, even if the EU did not exist.

But the EU remains the only institution that potentially stands between us and a world in which a corporate-dominated USA remains the only major power, leaving European states to compete amongst ourselves for corporate favours. For neoliberals such a world represents the ideal political economy. That is why the neoliberal right is Europhobic, despite the current dominance of neoliberal ideas in the EU. In fact, ‘Eurosceptic’ is a misnomer, as it implies a willingness to be convinced otherwise, which is not the case. As the UK prime minister, David Cameron, has made clear, those British neoliberals who support continued EU membership do so because they believe that it will be easier to prevent the Union regulating global capital by opposition and veto tactics from within rather than by leaving it. He and his colleagues realize that the EU remains the only potential challenge to neoliberal dominance.

The UK (under both Tories and New Labour) was highly active in support for EU enlargement to the east because it reasoned, correctly, that the new central European members would inhibit further integration. This was so for two reasons. First, extension to countries with very different economies slowed down the strengthening of European institutions. Second, as they emerged from state socialism, most central European elites were committed neoliberals. That it is largely these countries that would be harmed by the reduction in the EU budget that British Eurosceptics now want indicates how far UK support for enlargement was based on any interest in central Europe itself.

Labour’s growing return to hostility to the EU is less coherent than that of neoliberal Conservatives. On the one hand Labour stands alongside them in opposing any moves to re-regulate global finance (and therefore the City of London) likely to emerge from Berlin and Paris. On the other hand Labour is disillusioned by the way in which the Union has increasingly become a neoliberal force. This is entirely reasonable. However, in response the Party now seems to have set itself on the Conservative path of seeing the only viable European politics for the UK as one of opposition, denying that anything positive can come from Europe, and that there is therefore no point in the UK trying to acquire a reputation as a good team player.

This course will lead Labour to support calls for a referendum on EU membership. Like Cameron, they will then campaign for a ‘Yes’ vote on the grounds that staying in the EU is the only way we can ensure that it does nothing. That is the stirring slogan that will be pitted against the Eurosceptics’ appeals to our Glorious Island Heritage. Of course, the neoliberal wing of anti-EU hostility doesn’t want this island to be able to do anything effective in the world with its glorious heritage, any more than it wants Europe to do anything, but that argument will be lost in the swirl of hysterical nationalism that the referendum campaign will become.

Nationalist, as opposed to neoliberal, Eurosceptics have a different vision, and the Labour Party seems to be drifting towards their position. This is based on certain assumptions about the UK’s ability to deploy autonomous power in the world, as it could in the days of the British Empire. Parts of the British political class goes on acting as though the Empire still existed because it sees itself as piggy-backing on US power. This is not entirely foolish, and merits some investigation.

To put the point in the language of economics, the USA dominates major network externalities. This concept is normally applied to firms, not countries. Imagine two firms, each of which develops a similar new product. But one firm also owns the near-monopoly distribution network for the product concerned. The other firm’s product does not stand a chance of market success, even if it is superior, as it will be so hard to find outlets. Ownership of the network – ‘network externality’ - is more important than the quality of the product.

Now apply that to countries. The USA possesses major advantages of network externality. The dollar is the sole global currency; the English language the sole global tongue. Its military power can be exercised almost anywhere in the world. Its mass-market cultural products are recognized and shape fashion and taste everywhere. The corporations at the heart of its financial sector set the standards by which the world’s accounting systems are operated. New York’s three financial ratings agencies have become a powerful private form of regulation of governments, and they apply criteria developed according to American perspectives.

It does not matter if the products of this system are better or worse than those from elsewhere; the dominance of the US network ensures their success. We learned that lesson the very hard way in 2008 when the US-dominated financial markets proved to be very bad products indeed. But we have to put up with them - unless the US government itself decides to change the rules. Certainly individual nation states in Europe or elsewhere stand no chance of contesting them.

When corporations benefit from excessive network dominance we look to competition authorities for remedies. But there are no equivalent authorities in the global economic polity. Instead therefore we look to the development of alternative networks, so that there is choice among them and so that no one network can dominate. The European Union was not conceived as a potential rival network to the USA, as at the time of its founding Europeans were heavily dependent on and grateful for US military and economic support. Few, except perhaps in France, perceived the potential implications of this implicit acceptance of US network dominance. Over the years and largely unintentionally the Union has developed important global networks of its own, especially in fields of competition policy and standard-setting; but it remains a junior partner. And now there is the possibility of new networks emerging based on the new rising economic powers, which can develop their power more rapidly as they start off as existing political units rather than federations. Some of them may eventually overtake the excellent start that Europeans have made.

The European single currency has been a major step in the achievement of a global European network presence, and is an example of the sacrifice of national autonomy that is the necessary exchange for being part of a globally effective Europe. But the extent of sacrifice needed was under-estimated in the original treaty, because governments were happy to believe the over-simplified economics that said that all the European Central Bank needed to do was to watch over Europe-wide monetary aggregates. Many observers pointed out that this was inadequate, and that sooner or later more detailed monitoring of individual countries’ fiscal behaviour would be needed. The time has now come to face that decision.

This does not mean that the ECB now needs to impose austerity everywhere. The principal fiscal and monetary challenge is not today the avoidance of inflation and the control of public spending tout court. It is about how public spending and the welfare state are used. Are they there just to meet various social and political claims, or to support economic and social development – what European social policy specialists today call the ‘social investment welfare state’? Spending on infrastructure, training, enabling more people to enter the employed labour force and similar tasks are not the same as spending on subsidies or to maintain the incomes of privileged groups. Both creditor and debtor nations need to change their existing stances. Ironically, this alternative to austerity surveillance means that the monitoring of national government activities needs to go even further than at present discussed. But the outcome will be a stronger Euro, a stronger Europe – and stronger national economies that avoid both chronic debt and the demolition of important public spending programmes. The alternative imagined by leaving the EU is not a ‘return’ to national sovereignty, but subordination to a global economy dominated by the networks of others, from outside and beyond the reach of Europe.

This is what the debate over Europe and the UK’s place in it is really about, though it does not feature in public discussion at all. British European strategy, in or out of the EU, is focussed on preventing Europe developing a rival capacity while we ourselves piggy-back on US network dominance. This is not quite Glorious Island Heritage, but it makes some sense. The English language was once ours. Our governments share unquestioningly in US military adventures. We share a common law system and a preference for unregulated financial markets. But – and this is one of those ‘buts’ that belies the short length of the word: we have no co-determination rights in the US polity, except to the extent that some UK-based accountancy firms share in making the rules that govern global corporate governance.

The choice that the British are making in their desire to leave the EU is to sacrifice having a role in shaping a system for positive purposes (as we could do if we participated fully in European institutions as one of the Union’s leading nation states) in exchange for benefitting passively from a few components of US network dominance. Not so disastrous if one is content with the outcomes of the US corporate-dominated polity; but that is not at all where the Labour Party should be standing.

About the author

Colin Crouch is an emeritus professor of the University of Warwick. His recent books include Post-Democracy (2004), The Strange Non-Death of Neolibealism (2011), and Making Capitalism Fit for Society (2013).