A British Brexit Recession

Brexiteers, for the last three years, have claimed that the predicted recession following a vote for Brexit has not materialised. Of course, the assertion was nonsense, because Brexit had not happened. The statements about a recession, following a Brexit vote, were based on the assumption that, following such a vote, the government would quickly invoke Article 50, and proceed to Brexit. As it happened, lost as to what to do after the vote, the government waited for nine months, until March 2017, before invoking Article 50, and, with a two year negotiating window that everyone knew would likely be extended, as it was, all of the Brexit effects that were factored into the predictions of recession no longer applied. In fact, as opposition to Brexit mounted, and the potential for either a Brexit In Name Only, or a second referendum that would have scrapped Brexit altogether, became more likely, even more did the factors likely to cause a recession diminish in importance. But, its notable that, the more Brexit became more likely, with the appointment of Boris Johnson, in place of Theresa May, as Prime Minister, in the middle of 2019, the more those factors have reasserted themselves, and the economy has slowed significantly. 

GDP was rising under Labour, following the 2008-9 global
financial crash.  Under the Tories and Liberals, the economy
declined  after 2010, until around 2014, when it simply
stagnated.  Since 2016, the general downward trend has again
 resumed.  

Of course, even in 2016, the effect of the Brexit vote was actually felt. The Pound lost around 20% of its value. The Bank of England, cut official interest rates even though they were already at dangerously low levels already. And, although the economy did not go into recession, its not as though its performance could be described as anything other than lacklustre either.

A look at Monthly Economic Activity for the UK in the last
Year, particularly shows the downward trend accelerating
as Brexit loomed like a spectre.

Businesses crossed their fingers and hoped that sense would prevail, and carried on. Some made plans to shift their operations overseas, mostly to other EU countries. Productivity levels remained at shockingly low levels, as Britain's low wage, low value added economic model got a further boost, as the Brexit vote itself was an endorsement of the interests of all those low paying, inefficient small capitalists that backed it, and whose representatives are the Tory Party that was pushing it. But, in many ways, it was that low productivity, low wage economy that, itself, saved the economy from going into actual recession. 

A large part of UK GDP growth over the last 20 years is attributable to population growth, itself a function of immigration. Looked at in terms of per capita growth the performance has been even more dire. As population rises, these additional consumers demand goods and services, businesses increase their production to meet this additional demand, and hire additional workers to produce it. The additional workers have wages, then, to use to demand more goods and services, and so on.  Without the effects of immigration, the UK economy would have been notably smaller than it is. And, when aggregate demand in the economy rises, low levels of productivity mean that, in order to meet this additional demand, proportionally more workers have to be employed than in an economy where productivity is much higher. A worker in the UK only produces in five days what a worker in France or Germany is able to produce in just four days, because of the lower productivity in the UK. That's not the fault of the UK worker. Its not that they are lazy, but that the instruments of labour they have to work with, the infrastructure within which they work and so on, prevents their labour being as productive as that of other EU workers. Indeed, as well as differences in the way in which the unemployment rate is calculated, between the UK and other EU countries, this is one reason that unemployment in the EU has been higher than in the UK, i.e. other EU countries are able to increase their output by employing relatively less additional labour than is the UK. 

But, in turn, because the UK has to employ relatively more labour to increase output by a given amount, that higher level of employment, even with the UK's relatively low wages, means that all these workers are then able to demand additional wage goods and services, so that this creates a requirement to employ even more labour, and so on. Whilst this acts to increase gross output, the lower level of productivity means that the net output, the gross output less what has to be paid to workers in wages, plus what has to go to replace consumed constant capital – surplus value – grows more slowly. In other words, the surplus value/profit gets squeezed relative to the capital that must be employed, so that the rate of profit falls. 

Now, all of the tragedy that is Brexit rests with Johnson and the Tories. They broke it, they bought it. That's why its vital that Labour and its leadership candidates put as much distance as possible between Labour and Brexit, and its inevitable consequences. And Johnson can already be seen to be in a bind. Johnson knows that all those elderly bigots that voted for Brexit and for the Tories are not the sharpest tools in the box, and that they are swayed by all of the patriotic flag-waving bluff and bluster. They often talk about the Dunkirk Spirit, forgetting, of course, that Dunkirk was the moment, early in the Second World War, when Britain was actually defeated ignominiously. It was the USSR, and the US that defeated Hitler, Mussolini and Japan, not Britain. It was the point where the reality of Britain's relegation to second rank status was manifest. 

And, yet the bigots and patriots close their eyes to that reality, and still they live in the world of the British Empire, and talk about “Great” Britain, as though the myth were the reality. Johnson knows that he has to placate all of those bigots by continuing to thump the table, wave the flag, and assert that he will die in a ditch, and fight them on the beaches. Hence his assertion that there would be no checks on trade between Britain and Northern Ireland, despite the fact that that is precisely what he has signed up to. He has to claim that he will get a deal by the end of the year and make no concessions, asserting a determination to diverge. But, the only way a deal can be done in the year is either to capitulate once again to EU demands that Britain remain essentially inside the Customs Union and Single Market regime, or else that Britain effectively returns to the proposals for a crash out, with the crash simply having been deferred for a year. 

Johnson knows the latter is neither economically nor politically viable. It would be economically catastrophic, and, as a result, politically calamitous for him and his government, irrespective of his majority. He can't pursue that path, and the EU knows it. The more that reality imposes itself, the more Johnson and his government will try to pretend that they are not capitulating to it, in the same way he did in his commitment to die in a ditch hid the fact that he was about to sign up to a deal that not only had he, but even Theresa May had previously rejected, because it puts a border down the Irish Sea! The more the reality bites, the more Johnson will have to lie to all those bigots that voted for him that he is standing firm. 

The trouble is that the more he comes out with such statements, the more he drives himself into a dead-end, and the more businesses, and the financial markets will fear that he will not be able to dig himself out of the hole he has created. Already, on he back of the talk about divergence, the Pound has again begun to sink. Businesses complain that they have no idea where the government wants to be in terms of divergence or convergence. The government demands they prepare, but what are they to prepare for exactly? At best it means uncertainty is heightened for yet another year, at worst, it means that businesses, where they can, prepare by relocating their operations out of Britain, and into the EU. That already seems to be happening with a number of car makers, for example. Of course, whilst that's bad for Britain, its good for the EU. Those relocating businesses, mean more jobs in the EU, more profits, more economic growth. 

By the end of last year, UK growth had effectively come to a stop. The Bank of England has revised its forecast downwards for the coming year to just 0.8%, which with a margin of error, essentially means the economy will be in recession.  There is some evidence that there was a slight pick-up as a relief rally after the election, which was at least seen as having created a majority government. But, the more the consequence of that majority government becomes apparent, the more its likely to have a depressive rather than stimulative effect. And, the people who will be most adversely affected will mainly be those that voted for Brexit. Johnson is already trying to create a new victim narrative claiming that the EU is reneging on commitments, whereas, of course, it is him and his government that has reneged on its commitments in terms of Northern Ireland, and a desire for close relations. But, it will now become increasingly apparent that responsibility for the coming recession in Britain rests with Brexit and with those that advocated it. Increasingly, those that bought the snake oil will find that instead of curing all ills, it has simply made them sick. In those conditions, those that were conned, quickly, and often violently, turn their anger on the snake oil salesmen.