City of London, by Diliff, wikimedia
1. This isn’t an emergency
The bankruptcy of Lehman Brothers in September 2008 was an emergency. This was manifest in its rapid pace and the threat that it might spread exponentially, just like a fire. While the warning signs had been present for 18 months prior to the collapse of Lehmans, the emergency occurred over a series of hours, and demanded an immediate policy response. The state acted as a fire brigade on the basis that the emergency would otherwise have spiraled out of control. The fact that the financial crisis may have cost a sum of money comparable to a world war does not mean the rescue wasn't worth it, if the alternative was total social meltdown.
Brexit has a completely different rhythm, which is why comparisons to Lehmans don’t reveal very much. The weirdest thing about the past week has been the eerie sense of waiting for something to happen, the collapse of sterling not-withstanding. All that's happened so far is pretty much exactly what experts and policy-makers predicted, whereas experts were temporarily stumped during September 2008. Investors aren’t panicking, they’re simply responding as everyone said they would. It's the long-term future that is much more worrying. If Lehmans was a housefire (which was spreading), this is more like someone choosing to buy a house that the surveyor has found to be suffering long-term subsidence, but going ahead with the purchase anyway. Not only do the emergency services not care, they can't help you anyway. Meanwhile your insurance company (who you never liked in the first place) told you repeatedly they couldn't underwrite it. Buyer's remorse, indeed.
Where they are framed as such, emergencies can be used to entrench the status quo even more firmly, making a situation more reliant on existing powers, rather than less. This is clearly what happened with neoliberalism from 2008 onwards: the state and banks benefited from the ultra-fast pace of economic meltdown to implement measures (often with little deliberation, sometimes overnight or over weekends) that would rescue the status quo. Hence, states successfully sustained the flawed model of capitalism which privileged the financial sector for another 8 years, while pushing the costs elsewhere. But Brexit is a crisis of the state first and foremost. This makes it slower but ultimately far more transformative and frightening.
2. This is a twin-pronged crisis
Michael White, former Political Editor of the Guardian, writes that this is the greatest political crisis to afflict Britain in his lifetime (therefore since World War Two). It comes less than a decade after the worst financial crisis since 1929, and following the longest period of economic stagnation since the 1880s. I think it's too simple to treat Leave voters as responding directly to austerity, but equally this succession of once-in-a-lifetime crises cannot be a coincidence. The question is, what is the relation between the economic and the political crises, and why the delay between the two?
The first thing to note is that the 'emergency' of 2008 was never allowed to become a proper crisis, in the sense of a turning point or conclusive judgement. It was bad and scary, but in rescuing the situation, policy-makers ensured that nothing would fundamentally change. Crucially, the nature of the rescue (and subsequent policies such as negative interest rates, austerity measures, national bail-outs and QE) meant that debt obligations were upheld at all costs. Rather than learn from the mistakes of the past and start afresh (through debt write-offs) in a different direction, this absolutist respect for debts means that the power relations of the past (between creditor and debtor) are sustained and exacerbated. To insist on the sanctity of debt obligations is a way of ensuring that politics and economics are safely insulated from one another, thereby ensuring that an economic disaster avoids becoming a fully-fledged crisis. This insulation was time-limited: in the UK, it turns out to have lasted 8 years.
Given that the post-2008 regime of regulation, corporate governance and growth was roughly the same as the pre-2008 one, it was always clear that 2008 would be the first 'prong' of a two-pronged crisis. Most critical observers (me included) suspected that the second 'prong' would be similar to the first, i.e. another collapse in the credibility of financial derivatives, only this time without the same possibilities for a sovereign rescue. That would necessarily have produced far-reaching political change, for the simple reason that another rescue of the status quo wouldn’t have been viable.
Instead, crisis has emanated from outside of the financial sector altogether, from democracy itself. For Britain, July 2016 provides the full-stop at the end of a paragraph that began with September 2008 (or arguably a year earlier with Northern Rock). Historians may well look at Lehmans and Brexit as entangled with each other in various ways, but the exact causal connections between the first and second ‘prongs’ of the capitalist crisis are far from clear. What I think we can say instead is that both are intimately connected to the rise of finance from the 1980s onwards.
3. Finance produces distinctive political divisions
The term ‘financialisation’ refers to various processes, whereby the logic of finance permeates the non-financial economy and society. All manner of economic and non-economic entities (such as higher education and homes) become valued in terms of their capacity to earn future returns on investment. The Marxist historian Giovanni Arrighi argued that all phases of national capitalist expansion eventually reach their peak, then experience a compensatory wave of financial expansion on the way down. This grants a national economic power a few more years of wealth accumulation, but on the basis of shifting paper around and mediating financial agreements, rather than of producing things of any use. This is, as per the title of Wolfgang Streeck’s superb book, a case of buying time.
The rampant expansion of Britain’s financial sector from the 1980s onwards did exactly this, drawing money towards London (and to some extent the UK), but only on the basis that this is where money is made and traded. Hence, combating inflation and protecting sterling (i.e. demonstrating respect for money as a good in itself) were the pivotal instruments of British industrial policy from Thatcher through to Cameron. That ended last Thursday.
Buying a few more years of prosperity via the financial sector carries severe social costs. In particular, it produces some very awkward cultural and political divisions. These never quite resemble traditional class divisions, as between ‘bourgeoisie’ and ‘proletariat’ (where the former exploits the labour power of the latter). Instead, those who happen to own assets (often thanks to family inheritance) do vastly better than those that don’t. Where they choose to leverage these assets to buy more assets, then their advantages can grow exponentially. What begins with a slice of luck can rapidly snowball into a new rentier class (the ‘1%’), as Thomas Piketty’s work has demonstrated. The liberal attempt to anchor economic inequalities in differences in ‘merit’ or ‘talent’ or ‘effort’ comes under greater and greater strain, until eventually it loses credibility altogether. The market loses its status as a ‘level playing field’, producing an ideological crisis.
Furthermore, it produces a sense of inter-generational conflict, that is equally difficult to crowbar into traditional class divisions. Certain individuals now seem hugely privileged, simply by virtue of being born between 1940-1970, while subsequent generations seem to do progressively worse. The current focus on ‘generations’ imposes sharp dividing lines of the sort that market researchers tend to like (such as ‘baby-boomers’ against ‘millennials’), but exaggerates the binary nature of the politics. Underneath this is steady asset price inflation, year on year, and declining social provision, both enabled by the steady expansion of credit in circulation. In the UK, it becomes less economically fortunate to be born with each year that passes. My very first thought at 12.30am on Friday 24th June was for my two small children, and how much longer we’d be able to rely on adequate socialized healthcare.
While the underlying inequalities wrought by finance may not fall neatly into binary oppositions, they seem to have influenced the politics of Remain vs Leave in certain ways. Leave voters consisted roughly of those who have already accumulated assets over their lives plus those who don’t feel they ever had any chance of doing so. Remain voters consisted of those who still feel (for whatever reason) that they could make financialisation work for them, either because they’re young or because they’re rich and could become more so. To put that another way, many of the first group would view money as debt (closing down the future) while many of the latter would view it as credit (opening it up). Throw educational inequalities into this financial mix, and you get some stark political and cultural divisions.
4. Britain’s political parties are devastated
The culture wars have entered British politics in a major way. As in the US, the divide can also be approximately traced in terms of the 50% with a university degree versus the 50% without a university degree. Statistically speaking, having a university degree makes one more likely to be supportive of immigration and membership of the European Union. Those with a university degree live lives that are further-reaching in geography and opportunity; these are lives that are broader in cultural and economic scope. The situation in America is clearly highly charged right now, but it can at least be seen in terms of a trajectory that started with Nixon, gained momentum with Roe v Wade and was then seized as a conscious political strategy by the Republican party the whole way through to the madness of Donald Trump.
The shock of Brexit is partly in the discovery that this has crept up on us. Unlike America, Britain has always known that it is a class society. It speaks openly of class, makes jokes about class, judges people in terms of class. But our assumptions about class are sorely anachronistic, and don’t reflect the post-68 culture wars. We continue to think in terms of upstairs/downstairs, taking bizarre comfort in Downton Abbey. We still have a major political party called the Labour party. We can cope with the idea of some people being aristocrats and others being proles; at least we have a language to represent it. But the real inequalities and conflicts of post-1970s Britain, determined by a combination of finance and by cultural/educational differences, have basically been papered over by national tradition and media ignorance. They were concealed brilliantly by Blairite triangulation, and simply bubbled away in the background as a result.
In the US, the culture wars became reflected in the party system. Broadly speaking, the Republican Party represented those who felt threatened by the new freedoms of the 1960s, while the Democratic Party represented those who felt emancipated by them. Naturally, these are curious coalitions (for the Democrats this combined Wall Street with most ethnic minorities, and so on) but they have some underlying coherence. This produces horribly aggressive politics, but it at least means representative democracy sits on top of some real sociological divides.
In the UK, the referendum on Europe was arguably the first time since the 1970s that this primal sociological divide attained any explicit democratic visibility. It took us by surprise, and showed quite how arbitrary the delineation of ‘Labour’ and ‘Conservative’ really was, in comparison to the cultural and socio-economic divides revealed by the referendum. The division between Leave and Remain has a kind of sociological weightiness that renders the familiar, comforting visions of Labour v Tory a little superficial by comparison. Moreover, that Leave/Remain divide cuts the parties straight down the middle, rendering them both seemingly unsustainable right now.
5. It’ll take an additional emergency to know what kind of crisis this is
As the chaotic dual party leadership battles are demonstrating, Brexit already appears to be shrinking the quantity of centralized political power in the UK. For libertarians or revolutionary Marxists (all enthusiastic Leave-voters) this is a welcome outcome, and these intellectuals might be able to mount a coherent case for Brexit on that basis. If that were the only source of historic transformation, then it might be as much exciting as worrying. But what happens when an emergency hits in this context of crisis? This is what the intellectuals (such as Dominic Cummings) on the Leave side are completely ignoring. The justification for Brexit might withstand the various costs that were predictable, such as a run on sterling and the loss of regional or science funding. But when an unpredictable shock occurs, we will discover what kind of political economy we are now living with and seeking security from.
The source of the emergency could be anything, but it is surely likely to be either another financial shock or a major terrorist strike. Were either of these two things to happen, the loss of political power delivered by Brexit would produce far higher levels of panic, and far greater flight towards informal and cultural sources of security: fascism and local violence. We’ve already witnessed the rise of public racism and harassment on Britain’s streets since June 23rd, and that’s without anything yet fundamentally changing. As it becomes clear that the state’s capacity to provide security (social, economic, physical) is shrinking, especially in areas where fiscal policy and EU funds were key to social cohesion, then things could get much worse. And this is without considering how climate change is already reshaping the political geography of Britain.
Avoiding such an emergency may be crucial to how Brexit turns out. The longer we go without one, the easier it will be to absorb if and when it arrives. Anything the state could do in the meantime to guarantee equal security for all UK residents would be welcome, which makes the silence of the Home Secretary Theresa May all the more unwelcome. Some sort of ‘Lexit’ strategy might even become plausible if a period of relative peace is long enough, though it seems even less thought-through than Brexit itself. But an emergency is bound to come at some point, indeed the worry must be that Brexit heightens the chance of it occurring, as existing techniques of government and prevention come under increased strain. Anything that Isis could do to disrupt British politics between now and the general election could produce chilling results. Paul Mason has sketched out some of the international analogies between the present juncture and the 1930s, which add to the anxiety. Talk of fascism, violence and panic may feel overwrought right now. But to assume these things begin in the same dramatic fashion with which they end is to fall into the trap of understanding history only in retrospect.
This piece first appeared on the Political Economy Research Centre blog