What were the motivations voters had for leaving the European Union?
There’s been some big changes in our economies over 20 years as a result of globalization, and I don’t think that either politicians or columnists properly understood what those meant. One was that, 20 years ago when I was involved in making the Bank of England independent, we all thought that the biggest threat to stability was going to come from the government’s mistakes regarding inflation. And then we had a global financial crisis in an era of low inflation, the consequences of which are still playing out economically and politically.
The second thing is, we thought globalization and technological change were going to impact, in particular, the wages and jobs of the unskilled, but it’s really bitten into the wages and the incomes of people in the middle. You’ve seen in America and in Britain a big squeeze on the incomes of middle earners, and that’s made people angry.
The third thing is, we thought globalization would be about capital markets and trade, and nobody foresaw globalization of people moving on this scale. When I was writing for The Financial Times 25 years ago, we thought the issue was going to be Polish workers in Poland undercutting British car workers in Britain. What nobody foresaw was economic migration happening on the scale that it has. The reason why in Britain we didn’t have transitional controls on Eastern European migration in 2004 was that we didn’t really think people were going to move.
Some have blamed the anti-immigrant backlash on the Labour Party’s policies, beginning in the 1990s, that ramped up immigration. Is there any truth to that?
We’ve always been a country that has brought skilled people from around the world to work here. The City of London depends upon that. Labour did that while in government, but so had the previous Conservative government after Big Bang [the 1986 deregulation of British financial markets]. The mistake happened in 2004. We had just as a country decided not to join the single currency, the euro. I was at the Treasury, very involved in making sure we didn’t join. Then, a year later, when the accession of the East European countries happened, we had the option of having transitional controls on migration, and we said no. We said no partly from a diplomatic, foreign policy point of view; having said no to the euro, we wanted to be pro-European.
But the second thing was that we got the forecasts wrong. The government thought the numbers would be in the tens of thousands, and it turned out to be in the hundreds of thousands. David Cameron, then the Conservative Prime Minister, who gave Labour a very hard time for not controlling immigration, said in his manifesto in 2010 that he would get net migration down to the tens of thousands. But he couldn’t and didn’t. Having promised to do it and then having failed, that led to this sense of cynicism that nothing can be done.
How much of this vote was a rejection of expertise?
Whether you look at the left or the right, populist arguments often use the same language: “The rules aren’t fair. The system is rigged against you. You work hard and get an unfair deal. Somebody else is coming in and short-changing you, whether that is welfare cheats or multinational companies not paying their taxes. And when the elite, the establishment, the experts tell you this is the way it is, they’re just trying to hoodwink you.” We absolutely saw that language from the Leave campaign in exactly the same way as we see it from Donald Trump in the United States, or to some extent Jeremy Corbyn when he was fighting his Labour leadership campaign. The shocking thing is that the former Mayor of London, Boris Johnson, used those arguments, and the former Education Secretary, Michael Gove, used these arguments—even though in their previous jobs, they relied upon experts all the time.
But I’m afraid it is reflective of a broader cynicism across populations at the moment about politics and trust. It goes back to those fundamental assumptions we got wrong. People look at the global financial crisis and say, “You told us it was all going fine, and suddenly there was this massive banking crisis, and we’ve paid the price. You told us the market economy and globalization would make us better off, and I’m worse off.” When you see those jarring disappointments, people do start to question authority and expertise.
Should those Americans who are worried about the prospect of a Donald Trump presidency draw any lessons from the Brexit vote?
Well, I’m very much hoping that we’re not going to see a Donald Trump presidency. Although when I arrived in Harvard last September, many of my American friends said, “Donald Trump will be gone by October or November. That’s what always happens. These people flare and then crash.” And my reply was, “Well, that’s what they said about Jeremy Corbyn.”
The markets did not react well to the Brexit vote. What are we likely to see going forward?
I think it is now likely—not necessary, but likely—there will be a recession in Britain. At the moment, this is a British event, so we wouldn’t expect to see big spillover. But the large fall in the pound—its lowest level now in 30 years, a 20 percent fall against the dollar—says that people are thinking their investments are going to happen elsewhere. If we see a sustained period of companies changing their investment plans—whether that’s in real estate, manufacturing, or financial services—then the long-term effects for the country could be more profound than simply gyrations in short-term markets.
For the United States, the issue is less, “Is Britain going to undermine the American economy?” and more, “Is what’s happened in Britain an indication of a political trend that we might see repeated in the United States in the presidential election?” And that would be a much, much more serious economic event for the United States and the world.
What does Brexit mean for the future of U.S.–British relations?
Britain is a member of NATO, the G-7, and the G-20, and what’s inevitably going to happen is that it is going to talk about those things more from outside the European Union. We’ve always been a good ally to our American partners. But I think they also knew that the partnership is much stronger and more effective if Britain is not simply part of a bridge across the Atlantic, but also a bridge to the European Union. We will be a less influential and less effective ally to the United States from outside the European Union, especially if we end up walking away from Europe entirely. My hope is that while we are going to leave the political EU, we will find a way in which we continue to be an important economic player in Europe. But if we choose to become a greater Albania, that’s going be less interesting to our American friends, and rightly so.
What would you like to see happen next in terms of the procedure of decoupling from the EU?
There’s a divide both in Britain and amongst our European partners about the right strategy. In London, the choice is likely to come down to whether this is really a divorce negotiation or whether this is about finding a new accommodation. I think that it’s in Europe’s as well as in Britain’s interests to make the single market work while restricting freedom of movement. But if Europe insists that without free movement, you can’t stay in the single market—I think that will be very difficult for Britain. But the Conservative Party and the country are going to work out which side of that divide they want to be on. I hope they reach an accommodation rather than just walk away.
But our European partners have got to make a choice, as well. [European Commission President] Jean-Claude Juncker said last week [essentially], “Good riddance. You made your decision, we can’t let anybody else follow you; so, we want to get this done and get you out.” An alternative view is saying, “This could be very damaging for Europe as well. Let’s try and find an accommodation which keeps Britain as part of the wider family, even if it’s outside the union.”
Do you see Europe going in the direction of more integration or less?
If this is a reflection of a frustration about politics and government, stability and wages, and migration in the eyes of the British voters, all of those issues arise across the European Union. The eurozone has clearly not been an economic success. Migration and the refugee crisis are impacting politics across the European Union. Concerns about leadership and elites and expertise—you’ll hear exactly the same things said in Austria, Sweden, Denmark, and France as in Britain. Sometimes, our European colleagues find it easier to dismiss such problems as being British problems or Anglo-Saxon ones, whereas I think these are problems that concern developed countries across the world. They need to stand back and learn some lessons. If they do, that will help us. A more functioning, deeper, more integrated eurozone would be good for the world economy and good for Europe. We were never going to be part of that; we were always in some sense going to be on the outside. But I think finding a way to make the single market deeper while managing migration more effectively is necessary.
I was at a meeting a couple of days ago with colleagues from the economic and foreign policy establishment, and the question was asked, “If there were a vote on TTIP [the Transatlantic Trade and Investment Partnership], how many populations across Europe would vote for the agreement?” The view was almost none. That is a problem, because if we react against deepening our economic cooperation, we’ll end up impoverishing ourselves.
Your own party now appears to be in disarray. What does the future hold for Labour?
Over the last 18 months, anybody who told you that they had any idea of what to foresee was a fool. It’s been total chaos. There’s huge frustration within sections of Labour supporters and Labour MPs that the leadership and Jeremy Corbyn didn’t campaign for an In vote effectively, which is a reflection of the fact that he’s never really believed in the European Union over the last 40 years. That divide between the cities and the towns is a very big one within Labour, because we have lots of heartland, small-town areas, old industrial areas, which are very different these days from an urban, diverse Britain.
But that’s overlaid on a political crisis. The members of the party who choose a leader have become very disconnected from Labour voters. So you have a membership that has become much more leftwing, much more anti-capitalist, anti-globalization, anti-NATO, anti-market economy, and that’s not where the British public is. In politics, you can lead by persuading people to change, but if you tell people they’re wrong, then they don’t tend to want to follow. The Labour leadership has spent the last year telling its members what they want to hear and the rest of the country that they’re wrong. The members quite like it, and the rest of the country thinks, “What have you got to do with our lives?”
The original interview can be viewed here.Posted July 10th, 2016 by Ed's team