Can Europe Make It?

Appeal from a political economist: the left internationalist case for a second referendum on Brexit

The critical consideration is the strategic interests of that sector of the global corporate and wealth elites who want the dissolution of the EU as a bulwark against unfettered capitalism.

Photis Lysandrou
17 August 2018

Labour's Leader leads a rally to remain in the EU at Queen Elizabeth II Conference Centre, central London on May 14, 2016. Isabel Infantes/ Press Association. All rights reserved.

In 1975, a referendum was held on Britain’s membership of the European Union in which a substantial proportion of the left of the Labour Party, and of the labour movement more generally, voted in favour of withdrawal. Why? Because the EU’s institutional structures and trading arrangements favoured the interests of capital far more than they did the interests of labour. Rejecting Britain’s EU membership was therefore a clear-cut and correct class position for the left to take.

But is that same position correct today, more than four decades later? As the EU’s political and economic structures are still weighted in favour of business interests, it would seem that the answer has to be affirmative: rejection of Britain’s membership of the EU appears to represent a consistency of class principle. However, this consistency is only valid if complete abstraction is made from the seismic changes in the world order that have occurred since 1975. Factor these changes into the equation and what appears to be a consistent class position turns out to be anything but that in reality.

Globalisation and financialisation

The world in 1975 was one where communism still competed with capitalism and where the financial realm in the major capitalist economies was still in a heavily controlled and subordinate position mainly serving business interests in the industrial realm. But that world has gone. We may wish that things had turned out very differently, but if there is to be a coherent and effective strategy for defending the interests of labour in today’s reality we must first see that reality for what it is rather than start from any wishful thinking about what we would like it to be. The reality is that we now have a single world economic system that has emerged out of, and continues to draw its operational dynamic from the twinned processes of globalisation and financialisation.

The reality is that we now have a single world economic system that has emerged out of, and continues to draw its operational dynamic from the twinned processes of globalisation and financialisation. These processes still essentially constitute expansions of the commodity principle as defined by Marx: that is, defined as any entity whose price is determined against social standards rather than set by private negotiation. Following the collapse of colonialism in the mid part of the twentieth century and the collapse of communism near the end of that century, the commodity principle has been geographically stretched to the point where it now covers virtually the entire planet. Financialisation links in with the globalisation of the commodity principle in that it signifies the further expansion of this principle to the point where it now covers not only human capacities and their current material outputs but also debt and equity securities – that is, financial claims on the future outputs produced by capacities.

The governments and large corporations issuing securities may only see these as funding instruments but for the institutional investors such as pension funds and insurance companies that today dominate the buy side of the financial markets, securities have acquired a second important function as ‘investables’: entities whose use value is to serve as portable stores of value into which clients’ monies can be poured and from which monies can be extracted to repay clients.

Explosive growth of finance sector

It is this transformation of financial securities into commodities in their own right that holds the key to the explosive growth of the global financial sector to the point where it now completely dominates the global productive sector on which it is based. As long as securities’ sole major function was to help finance the production of material commodities, the global stocks of securities could never deviate significantly from annual global output flows.

Thus even as recently as 1980 the $11 trillion worth of global bond and equity volumes then outstanding was roughly on a par with the then aggregate value of world GDP. By 2015, however, the aggregate nominal value of outstanding global bond and equity volumes had reached about $180 trillion, a sum roughly two and a half times that for nominal world GDP for that same year, a development only made possible by the ongoing growth in global investor demand for securities in their value storage capacity.

Dollar supremacy

The importance of understanding the globalisation and financialisation processes lies in the fact that their combination has led to a huge concentration of power at the country level and to a huge concentration of wealth at the personal level. The current position of the United States exemplifies the first of these points. The US has long been a major world power, but while that power was rivalled by that of other countries for much of the twentieth century, this has ceased to be the case today.

The reason is that the major source of US power is now located less in the global physical realm, where military and diplomatic prowess coupled with production and trading strengths are the main constituent ingredients of power, and more in the global financial realm where the US dollar rules supreme. There can be no clearer indication of this supremacy than the dollar’s percentage share of the daily $5 trillion turnover volume in the world’s foreign exchange markets: 48% as compared with the euro’s 15%, the yen’s 11% and the British pound’s 6%.  After this it is like falling off a precipice, with China’s renminbi registering a mere 2% and the Russian, Indian and Brazilian currencies’ barely registering 0.5% each. So dominant is the use of the dollar in a variety of international monetary functions that some 90 other national currencies are currently tied to it in one form or other.

Dollar supremacy may appear to make little sense in light of rising US government and corporate debts and trade deficits on the one hand and the US’ declining share of world production on the other, a combination of trends that has led many expert commentators to wrongly predict the coming decline of the dollar. On the contrary, the dollar’s continuing supremacy makes complete sense once US government and corporate bonds, which together comprise over 40% of today’s global bond volumes, are viewed not only as debt instruments but also as investables that are sought by the world’s private institutional investors and by many of the world’s governments for value storage purposes. Ultimately, it is the vast mass of dollar-denominated bonds and equities that enables the dollar to exert its gravitational pull over the overwhelming majority of other national currencies, and it is this gravitational pull that in the end explains the Trump administration’s ability to pursue its highly divisive policies without fear of any effective retribution. It is this gravitational pull that in the end explains the Trump administration’s ability to pursue its highly divisive policies without fear of any effective retribution.   

Individual wealth

The same conjunction of globalisation and financialisation that now sets the USA apart in terms of power is also that which sets apart a vanishingly small number of individuals in terms of wealth. The past few decades have seen a systematic decline in labour’s share of global income relative to capital’s share. Key amongst the contributory factors to this development was the collapse of communism, which served to release hundreds of millions of workers onto the global labour pool; and the accelerating advances in information and communications technologies that have ensured that much of the new labour supply is harnessed to global commodity production and exchange.

However, alongside the marked distributional shift away from labour to capital is the no less marked distributional shift away from those groups within the capital sector that are directly involved in the production of material commodities towards those groups managing and holding financial commodities. 

In 2015 the world’s high net worth individuals ( HNWI’s: i.e. those with assets excluding their primary residence of over $1 million) totalled some 15 million (a figure barely more than one tenth of one percent of the world’s population of 7 billion) and held assets with a combined worth of some $59 trillion (world GDP for that year was about $74 trillion).

Even more striking than this last fact is that pertaining to the enormous amount of wealth concentrated at the very top of the wealth pyramid. About 35% of HNWI assets in 2015  (i.e. about $21 trillion) was held by just 145,000 ‘ultra’ HNWIs (i.e. individuals with net assets in excess of $30 million). Assuming an average annual rate of return of just 5%, these 145,000 individuals would have earned the same amount of income in 2015 as did the whole of Russia with a population of 145 million.

History may be replete with cases of individuals amassing vast fortunes, but global wealth concentration on the current scale is without precedent and it is so in large part because of financialisation. While some proportion of HNWI wealth is held in the form of cash and real estate, the majority proportion (between 55% and 60%) is held in the form of income generating financial securities, corporate equities and bonds and government bonds. Pension funds and insurance companies may have spearheaded the transformation of securities into commodities with a wealth storage capacity but it is super-rich individuals who have been among the chief beneficiaries of this transformation.

Cometh the tax man?

The HNWI population is highly diverse in terms of nationality, social status, occupation and source of wealth origin, but it also has certain fundamental interests and priorities in common. On the economic front, the overriding priority of the world’s super rich is to ensure that they get to keep as much of their wealth as is possible for themselves and out of the reach of the taxman. This is why they hire the best accountants and financial advisors that money can buy, why they store much of their spare cash in secret bank accounts dotted around the world and why they allocate the bulk of their financial securities to an assortment of investment companies and asset managers, including hedge funds and private equity firms, that are invariably headquartered in off-shore financial centres where taxes are either minimal or absent altogether. On the political front, their overriding priority is to ensure that there are no government-coordinated attempts to tax private wealth or to regulate any of the corporate and financial activities that contribute to the continued accumulation of that wealth.

It is in the context of these shared economic and political priorities of the world’s HNWI population that we can understand why the dissolution of the European Union is an objective fervently desired by a significant proportion, if not by the entirety, of that population. It is no coincidence that the clearest and most brutally frank expression of this desired objective should come from the most powerful representative of the world’s HNWIs: the multi-billionaire US president, Donald Trump. 

The EU

As agreed, the EU’s institutional structures and regulatory framework are designed to promote the interests of capital over those of labour. It is symptomatic of this fact that the EU’s continued expansion in size over recent decades has done next to nothing to slow down, let alone reverse, the trend decline in labour’s share of global income. This said, it is still the case that the EU’s existence poses a threat to the interests of certain segments within the capital sector.

While some of the EU’s internal market rules and regulations are conducive to profit creation in the manufacturing and financial spheres, there are several others that impede profits and their distribution to private individuals. Health, safety and environmental regulations in the manufacturing sphere, and hedge fund transparency requirements and bankers’ bonus caps in the financial sphere are just a few examples. If these regulations are one major reason behind most HNWIs’ desire for the EU’s dissolution, the other major reason has to do with taxation. If these regulations are one major reason behind most high net worth individuals’ desire for the EU’s dissolution, the other major reason has to do with taxation.

While there is a relatively high degree of EU-wide governmental coordination in many policy areas – and in the eurozone this even includes monetary policy – taxation is the one area where there is minimal coordination. The resulting wide divergence between national tax regimes taken together with high capital mobility has inevitably led to a trend shift in the tax burden away from multinational corporations and wealthy individuals (as the competitive race to the bottom forces ever lower corporate and wealth taxes) towards small businesses and salaried workers (who are not only not able to take advantage of differing national income and profit tax rates but must also bear the major burden of rising indirect taxes such as value added taxes, excise duties and local service and business charges). This is how things currently stand in the EU and, given the degree to which national governments zealously guard their sovereignty over taxation, it is a situation that will not change easily. There is, nevertheless, always the possibility that it will change.  

The end of austerity – one risk too far

So far, many governments across the EU have dealt with the fall-out of the great financial crisis of 2007-8 largely through austerity measures, that is, by cutting back on their expenditures rather than by increasing their tax revenues. However, if the point is reached where the continued erosion of the tax base of the member EU countries and the ensuing cuts in government services begin to seriously threaten the economic stability and social fabric of those countries then, at that point, there is a real possibility that they might agree to some kind of coordinated position with regard to corporate profit and wealth taxes.

The risk that this possibility may become reality is a risk that certain echelons within the global corporate and wealth elites are not prepared to take. It is for them a risk that has to be eliminated completely and for this to happen the EU must be eliminated as an overarching framework linking together 28 member countries (27 in the event that Brexit does go ahead). The EU must be eliminated as an overarching framework linking together 28 member countries (27 in the event that Brexit does go ahead).

The EU is not going to fold under the impact of any outside pressure. Indeed, a central purpose behind its establishment in the first place was that it could provide protective cover against any of the economic, financial or political pressures emanating from other parts of the world. Rather, any attempt at destroying the EU must be mounted from within the EU itself, a point that brings us to the role of the populist far right movements and parties to be found in virtually every EU member state.

Their role has always been to help leverage up the position of the anti-EU politicians within the mainstream political parties by tapping into the fears and anxieties of ordinary working people and ensuring that their resulting anger is channelled less against the rich and powerful elites than against poor job-seeking immigrants and thus against the EU bureaucracy that encourages cross border migration. That role became newly opportune and newly feasible in the wake of the financial crisis because that crisis hit the EU particularly hard, and because the ensuing steep rise in unemployment in many of its member states provided fertile soil for the poisonous spread of far right populism.

Labour and the Brexit referendum

Thus far the anti-EU political parties and movements have not succeeded in pulling any EU member state out of the EU – of course, the UK being the exception should Brexit go ahead.

That the UK is the exception is the result of a 2016 referendum which exhibited as massive a gulf between the inputs into the opposing campaigns on Brexit as the margin between the final voting results was narrow. From the very outset of the referendum the right wing press with more than 80% of the UK’s readership and led by Rupert Murdoch’s The Sun and Viscount Rothermere’s Daily Mail conducted a campaign that was unerringly consistent in its hatred of the EU and all things to do with the EU. No less consistently vicious was the anti-EU advertising and billboard campaign that was heavily financed by many hedge fund managers and by other rich Tory party and UKIP donors. Up against all this the left had the grassroots Momentum group flatly refusing to take any part in the referendum, and sections of the Labour Party leadership running a Remain campaign that was so tepid and hesitant and hedged about with so many qualifications that many traditional Labour Party supporters were left confused as to exactly what was the Party’s position on Brexit. It may well be a fact, from any left-wing perspective, that the EU as a whole merits no higher score than 7 out of 10. But to go on air and state this at a time when right wing forces were running a relentlessly venomous anti-EU campaign, was either to be wilfully disingenuous or irredeemably naive. What other interpretation is possible? Given the extreme unevenness of the Brexit debate in the 2016 referendum, the fact that 48% of the British electorate still voted to remain should be cause enough for demanding a second referendum.

Given the extreme unevenness of the Brexit debate in the 2016 referendum, the fact that 48% of the British electorate still voted to remain should be cause enough for demanding a second referendum. Yet the current Labour Party leadership refuses to put this demand. Why? Respect for “the will of the people” cannot be the reason because the left does not usually abandon a progressive position on a particular policy whenever a conservative counter-position on that same policy happens to be voted through.

Rather, the real reason is that a substantial section of the Labour leadership is in actual fact solidly in favour of Brexit. The thinking behind this position has been given its most vocal formulation by the Morning Star and the Communist Party of Britain under the rubric of ‘Lexit’, the left case for Brexit. The differences between Lexit and Brexit are basically two: where the Right targets the centralised bureaucratic nature of the EU, the left targets its centralised capitalist nature; and where the purported reason behind the Right’s anti-EU position is to safeguard jobs by taking back control of national borders and thus by cutting back on immigration, the declared objective of Lexit is to safeguard jobs not only by controlling national borders but also by breaking free of the EU’s pro-capitalist strictures that inhibit nationalisation or increased government investment expenditures and manufacturing subsidies.  


The professed ant-capitalist reasoning behind the case for Lexit is what, of course, makes this case so seductively appealing to certain sections of the left in the Labour Party and in the trade unions. But does this case really advance the interests of labour as opposed to those of capital?

To find the answer, consider the following scenario. To say that the British left should campaign for EU withdrawal in order to promote an anti-capitalist programme is to say that every leftwing movement in every other EU country should do the same. Now let us suppose that these Lexit-type campaigns are uniformly successful, such that the EU is no more and we are left with 28 completely independent European countries with left-leaning governments committed to job creating and service expansion programmes. While some part of these programmes can be sourced internally, their full realisation will in many instances require substantial investments from multinational corporations. Taking full advantage of the absence of the EU as a inter-country coordinating framework, these corporations will inevitably press forward two sets of demands as conditions either for locating new investments, or for expanding existing investments, in any single country.

As already noted, the EU currently has in place a wide range of marketing, production and employment standards that, while not going far enough to promote the interests of working people, nevertheless set a protective bar for safeguarding those interests. The first set of conditions corporations would exact is to do with profit maximisation: on the marketing and sales side, they will demand the relaxation of certain standards the compliance with which eats into profits; and on the production side, they will demand the relaxation of certain labour rights and employment terms the compliance with which raises input costs thus lowering profit margins.

The second set of conditions is to do with profit distribution: multinational corporations will want to keep as much as possible of the profits they generate for themselves and for their shareholders, which means forcing down state taxes on corporate profits. The current EU average corporate tax rate at 21% is comparatively low as compared with the 35% that was the average 20 years ago, but, this said, the EU is still holding the corporate tax bar well above zero. Absent the EU, and that bar will inevitably drop to zero as countries compete with each other in a tax race to the bottom in the fight to attract and keep multinational investments. Lexit’s core assumption is that this struggle is most likely to be settled in favour of labour when each country’s working class takes on its own capitalist class.

Can it be said that the above scenario is wrong because all of the independent left-leaning governments would exhibit international solidarity and not engage in beggar thy neighbour policies? The answer is no, because such a statement contradicts the most basic premise of Lexit, which is that the whole point of regaining national control over one’s laws and borders is to enable each left-leaning government to fulfil its primary domestic responsibility, namely, to promote the material interests of its own working people and not the interests of other countries’ working peoples.

If class struggle provides the all-encompassing rationale for Lexit, its core assumption is that this struggle is most likely to be settled in favour of labour when each country’s working class takes on its own capitalist class. For, as was put by one committed socialist Labour MP who campaigned for Leave in the 2016 referendum: “fighting capitalism state-by-state is hard enough …It’s even harder when you’re fighting it on the basis of eight states, 10 states, and now 28.”

“Socialism in one country” makes no sense

This type of ‘socialism in one country’ strategy may make sense in a world of parallel immigration and capital controls, but it makes no sense in today’s globalised and financialised world where the continuing possibility of imposing physical constraints on labour mobility is not matched by anything like the same possibility of imposing constraints on capital mobility.

In such an asymmetric world, international class solidarity across the countries of Europe will not hold up for an instant because of the disparate sizes and levels of development of their domestic economies and the concomitant disparate degrees of dependence on labour emigration as a constituent element in job creation.

The logic is remorseless: why should left governments in countries that are heavily dependent on labour emigration rights for substantial numbers of their workforce show international class solidarity when negotiating employment or tax terms with multinational corporations when the left governments in countries that are not so dependent on labour emigration show no similar solidarity when demanding strict labour immigration controls. In effect, a successful European-wide implementation of Lexit would result less in a move from capitalism to socialism than in a move from a relatively controlled and fettered form of capitalism to a completely uncontrolled and unfettered form of capitalism.

Know thine enemy

It is precisely because this would be the likely result of any European-wide implementation of Lexit-type programmes that the argument behind Lexit should be ruthlessly thought through, taken apart and abandoned. The critical point to consider in this context is the strategic interests of that sector of the global corporate and wealth elites who want the dissolution of the EU as a bulwark against unfettered capitalism. These interests will not be achieved by relying solely on the far right populist parties because these in most EU countries will not generate sufficient mass support for an anti-EU position. Their overtly xenophobic and racist sentiments and language are simply too repulsive to too many sections of the electorate, including those people that might otherwise be sympathetic to an anti-EU position.

It is in regard to the latter group of people that the far left’s role assumes crucial importance, because the provision of an anti-EU argument coated in anti-capitalist rhetoric allows these people to hold their noses and keep their conscience clean when voting with the far right against the EU. One of the cardinal lessons of the Brexit referendum result was that it proved how effective the anti-EU roles of the far right and of the far left can be when combined together in a mutually reinforcing dynamic: for where the far right conducted a full frontal offensive against the EU that was unashamedly pro-liberal capitalist in aim and content, the far left acted as a corrosive force in the rear, undermining and fragmenting any opposition to that anti-EU offensive.

Reversing the original decision 

The conclusion that follows from everything that has been said above is that any genuinely left internationalist position on the EU is one that fights for its preservation. And what this means in the British context, is that the left must come together with those who demand a second referendum on Brexit that can reverse the original decision.

Only by remaining in the EU and acting in concert with its EU partners can Britain confront the multinationals and the super-rich on the scale necessary for the realisation of a growth-generating and job-expansion programme.

Of course the present structures of the EU inhibit the degree to which such a coordinated confrontation can be made, and of course the present dominant economic ideology in the EU is one that favours austerity-type programmes. But these are reasons for fighting to change these existing structures and this dominant neo-liberal ideology within the EU. They are categorically not reasons for abandoning the EU, for to do so will constitute a highly irresponsible act that will neither be forgotten nor forgiven by future generations.

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