Incorrigible gamblers
The British and their Brexit Alleingang
For the British it is to be hoped that the fate of their once glorious manufacturing industry is not the model for what will await them after their retreat from Europe: a universal withering.
Economic growth of 1.8 percent for the next two years instead of the earlier estimate of 4 percent. A government forced to borrow an extra thirty billion pound sterling per year on top of the already towering pile of public debt — just to compensate for the decline in tax revenue caused by the slower growth. American Too Big To Fail-banks losing the ‘passports’ enabling them to access from London the whole of the European Union as one big single market. European TBTF-banks facing another dilemma: abandon London altogether, or scrape together forty billion pound in extra capital for their affiliates in the City. British universities which — however sterling their reputation — already find themselves excluded from the European funds and networks crucial for international scientific research.
So far, all attention has been focused on the disastrous economic results of the British decision to leave the EU. The motive behind the majority for Leave seemed clear, after all: it was the immigration, Stupid. But why have so many Brits become so scared that immigrants will rob them of their jobs and income? Are there perhaps also identifiable economic causes of the outcome of the referendum? The answer is difficult to find. Hard data had proved the Remain-camp to be in the right. But this had been overwhelmingly evident long before the June 23 vote. Why did a majority of the electorate choose simply to ignore the evidence?
Maybe because the advantages of EU-membership have passed them by, while they were still left to wrestle with older, more UK-indigenous economic problems. Great Britain has always had two economic personae. One is highly dynamic. The ‘sick man of Europe’ from the Seventies, combining mass strikes and unemployment with high inflation, transformed in less than a decade into one the fittest sprinters of the continent, with 5 percent growth per year and hardly any jobless left. The British repeated this impressive feat after the credit crisis. In growth terms, they performed far less poorly than their continental European brothers and sisters.
But British unemployment remained high this time around, and that will not change post-Brexit. The other persona is Inequality, with a capital I. Of all highly developed economies, only the United States of America has a gap between rich and poor, in terms of the degree to which they profit from recovery and suffer during recession, which is even more pronounced than that of the United Kingdom. They who recall the decrepit and impoverished London of the early Eighties, will now walk around the British capital with eyes wide with wonder. Whole neighbourhoods have changed unrecognisably for the good. Wherever you look, you see apartment and office blocks and brand-new train- and underground stations, recently built or under construction. Rural Britain, however, has not profited from this building and investment boom. There, The Economist wrote recently, economic production is still below the level of 2006. ‘In effect, a decade-long rural recession. The percentage of rural folk who are employed is lower now than it was in 2008–09. In recent years population growth has been far slower in rural areas than in urban ones.’
Port Talbot Steelworks offers an interesting case for a closer look into the economic spleen behind Leave
Take Wales. In surface area and population size it is the third nation within the United Kingdom. In Gross Domestic Product (GDP) per capita it is the number four, just behind Northern Ireland, which is smaller than Wales. Whereas the Scots and Northern Irish chose to Remain, 53 percent of the Welshmen voted to Leave — exactly the same percentage as the English. Wales already made the news earlier this year, when Tata Steel put up for sale its factory there after years of incessant losses. Over a period of nine years, the Indians invested 1.5 billion euro in their British steel factories. To no avail. One and a half billion, coming from the former crown jewel of the colonial empire — sic transit gloria Albioni.
The Port Talbot Steelworks offers an interesting case for a closer look at the economic spleen behind the Leave vote. It still is by far the largest steel factory in England, and one of the largest in the world. It employs four thousand people; its closure would be a disaster for the city of Port Talbot with its population of 37,000. But on the world steel market its significance has been withering for a long time. In both personae it can serve as a model for Great Britain as a whole.
Fokko van Duyne is well acquainted with the Port Talbot Steelworks. ‘My involvement ended sixteen years ago,’ he offers as a cautious opening remark. But that is exactly the point here. Tata acquired the steelworks when it took over Corus in 2007. Corus had been formed eight years earlier by the merger between British Steel and Koninklijke Hoogovens, which was led by Van Duyne at the time. Then, already, the British side was in dire straits. With 44,000 employees British Steel earned 6.2 billion pound in revenue, a decline of a billion within two years. With half the headcount Hoogovens earned eleven billion guilders, two billion more than a few years earlier. In terms of investment the gap was even bigger. The British level of investment had more than halved in a couple of years, to 189 million pound. The Dutch invested almost a billion guilders, five times as much as in 1994.
Port Talbot and IJmuiden, where Hoogovens is located, lend themselves well to a comparison, because both steel manufacturing complexes sprang from the same visionary inspiration. Until far into the 20th century steel corporations used to build their factories as close as possible to the sources of their raw materials: iron ore and coal, for the cokes which are still indispensable to the production of iron and steel. The founders of Hoogovens, which started to ship steel in 1924, and of the Port Talbot Steelworks, which became operational in 1953, chose to locate near the sea, where the raw materials as well as the end products could be delivered and carried away by ship. This proved to be a touch of genius. They could buy their coal and ore wherever they were cheapest, and transport their steel and iron more easily to wherever demand and prices were highest.
Imperial overstretch remains an important feature of the British economy
Hoogovens is faring well to this very day. For Port Talbot, its location has apparently ceased to be an advantage many years ago. ‘The British had a very different history compared to ours,’ Van Duyne says. ‘While we had always been able to keep investing, they had gone through a traumatic shake-up.’ British Steel had been formed as a state enterprise in 1967, when Harold Wilson’s Labour government had nationalised almost all of the steel industry. What followed, was thirteen years of dithering, with too many factories, too many employees and mounting losses. In 1980 the first Thatcher-cabinet embarked upon a re-privatisation. Within three years, half of the 144,000 British steel workers lost their jobs. ‘At the same time,’ says Van Duyne, ‘the number of steel factories went from twelve to four.’ Port Talbot was among the few survivors, but only just. British Steel was hoisted back onto its own legs in 1988. Eleven years later, these limbs were proved to be too frail. ‘When we merged with them,’ says Van Duyne, ‘underinvestment was still a serious issue.’
A whole sector of manufacturing industry had been taken from private to public ownership and back again in the space of just twenty years. Imperial overstretch remains an important feature of the British economy, even long after the Empire has been dismantled. With their own seat in the Security Council, their own nuclear sword and their ‘special relationship’ with the Americans, the British like to see themselves as the fifth economy on earth — after the Americans, the Japanese, the Germans and the French. In fact they are number nine — if you take China, India, Russia and Brazil into the equation.
Underinvestment is a second characteristic. The British are so obsessed with their status in the world that they tend to neglect their own island. The overcrowded road network testifies to that: mainly two-lane, dotted with street-level roundabout crossings. Just like the rows of crumbling, abandoned houses you can still find all over England. Seen from a long-term perspective, the United Kingdom comes last in the G7 of highly developed economies. It invests the least of all G7-countries, the British Office for National Statistics found in 2014: 15 percent of GDP, against 22 percent for Canada and 25 percent for France. The income, equity and level of education of the average Brit are also below the mean G7-level, the OECD concluded a year later. His or her labour productivity was even branded ‘exceptionally weak’ by the OECD, from the credit crisis in 2008 onwards. As a consequence, during the seven years since then Albion struggled with stagnating real wages and GDP per capita.
This is partly the outcome of a century of undecided ideological warfare. Until recently, the British constituency system produced alternate parliamentary majorities, then for Labour, then for the Tories. After each change of power, left and right alike tried to realise their own agenda, and erase the one of the previous government. The ambitions did not shrink in proportion during the painful transition from boots to slippers. Great Britain was the first, and for a long time the grandest industrial nation on earth. From 1900 onwards, Dutch historian Jan Romein’s ‘law of the handicap of a head start’ did its wrecker’s work, greatly helped by two exhausting world wars. Already during the Great Depression it was clear that British industry suffered from poor management, undercapitalisation and obsolete factories.
British society was transformed into the most culturally diverse in Europe. And the toughest
The successive nationalisations by Labour after 1945 were partly a reaction to the lethargy in the board rooms. If the bosses didn’t act, then maybe government should. Regrettably, its assertiveness was mostly misdirected. For instance, the UK government invested heavily in the modernisation of coal mines, just as the world was taking to oil. The automobile industry was persuaded to produce as many cars as it could for export, to earn the dollars Britain sorely needed to pay off its vast war debts. The poor quality of those cars led to their makers’ eventual demise, some thirty years later.
Margaret Thatcher took it upon her to demolish state management and state protection of the economy until the very last stone. She became the global idol of the neoliberal Zeitgeist, even more so than her contemporary and admirer, the American president Ronald Reagan. Thatcher caused a revolution that changed Britain beyond recognition in the space of ten years. Her Big Bang made London into the second financial centre of the world after Wall Street. Foreign brands like Toyota, Nissan and Honda took over Britain’s car factories, and opened new ones in smaller cities like Derby and Sunderland. Manufacturing industry shrunk to 10 percent of GDP, financial services expanded to the same level. In the process, British society, for over a century entrenched in bitter class warfare, was transformed into the most culturally diverse in Europe.
And the toughest, by an uncomfortable margin. In 1993 I attended a dinner party I will never forget. We stayed with the parents of a friend of mine, Julian Ellison. Beside us, they had invited two other couples. All six personified the Thatcher era: people from modest backgrounds, who had built up successful businesses of their own, only to see them wrecked again. The Thatcher cabinets privatised everything; even the vast social housing sector in the UK. Hundreds of thousands of tenants had become owners of their council flats, thanks to cheap mortgages specially created for them. During the recession of the early Nineties, British interest rates shot up. Many of the newly minted home owners defaulted on their mortgages. They were evicted without mercy.
Julian’s stepfather had almost suffered the same fate. He had a real estate company, which by its very nature was heavily dependent on bank loans. When rates started to rise, his banks immediately called in their loans. By selling off almost everything he owned, he had narrowly avoided bankruptcy — as well as the forced sale of his manor in Devonshire. It was not a particularly large house, but beautifully situated. On top of a hill, with unimpeded views of the surrounding countryside — the classic dream house of a British social climber.
‘The strange thing is, in England I’ve only seen things improve over the last couple of years’
The two other couples had gone bankrupt, business-wise and in private. One of the two was so completely broke, that Julian’s father had invited them to stay on his estate for a while, to wait for better times. He himself was very bitter about the banks that had dropped him like a brick. But despite all that it was not a sombre evening by any means. All three couples spoke openly about their catastrophes, with a very British mix of cynicism and cheerfulness. A dinner party with six people, four of whom had lost everything, and two only just managed to save their skin — I had never experienced anything remotely comparable in solid and stodgy Holland.
Julian later became an entrepreneur himself, in the world of digital start-ups. When his parents could still afford it he had been able to study in Oxford, at Balliol College. There he was a contemporary of later Brexiteers Boris Johnson and Michael Gove. ‘I’ve known them well,’ he tells me via Skype. ‘Gove was an arch-unionist at the time: for him, the unity of the United Kingdom went above everything else. It has always amazed me how the campaign for Brexit completely neglected its consequences for that very union.’ Since 2005 Ellison and his family have been living in county Mayo on the Irish West coast. A two-hour drive from the border with Northern Ireland. ‘Will it close, if and when the Northern Irish leave the EU together with the English? That really is a big issue over here. Nobody knows what is going to happen.’
They made the move to Ireland for several reasons. ‘I had just sold my first company at a nice profit, and housing and education were cheaper here. But we also found it important to raise our three children as true Europeans.’ The credit crisis, which took a particularly heavy toll on Ireland, barely affected him at all. ‘A lot of my work is in England. The strange thing is, over there I have only seen things improve over the last couple of years.’ British government introduced new tax credits, causing small investors to put more money into start-ups than ever before. ‘I see cool new companies and networks popping up literally everywhere.’
Just when, at long last, new flowers start to bloom in the post-industrial desert, the British consciously opt for the risk of a new drought by leaving the European Union. Maybe Brexit can only be explained by emotion. A deep craving to turn around, and tend lovingly to their exquisitely beautiful British isles. Away from the rest of the world, which has brought them so many disappointments. As for economic earthquakes, the British are well used to them. Moreover, they are incorrigible gamblers.
‘The three biggest steel makers had 10 percent of the world market. Now the Chinese own half of it’
But it remains a dangerous, if not hopeless adventure. ‘When I left Hoogovens in 2000,’ says Fokko van Duyne, ‘world steel production amounted to 780 million tonnes per year. Even then there was overcapacity. Now we produce 1.5 billion tonnes per year.’ This twofold increase is entirely accounted for by China, which began to produce its own steel in order to build cars, cities, bridges and railroads. Since economic growth there slowed down, hundreds of millions of tonnes of dirt-cheap Chinese steel have been flooding the world market. ‘At the time of the Corus merger, the three biggest steel makers in the world collectively served just 10 percent of world demand,’ says Van Duyne. ‘Now the Chinese own half of it.’
The former British Steel is left with a share of half a percent. Even all that money from the former colony, which in the meantime has ballooned into the third economy of the world, did not make the slightest difference. If the British do not stop ignoring all the signals flashing red, their stubborn Alleingang will share the fate of that mighty steelworks in Port Talbot: a reduction first from boots to slippers, and then to toddler’s shoes.
This story first appeared in Dutch in this week’s edition of De Groene Amsterdammer, Holland’s oldest and most distinguished weekly magazine.
