I gave the economics lecture at the recent national conference at NUIG commemorating the centenary of the Easter Rising. I had three main messages. First, the economic history of post-independence Ireland was not particularly unusual. Very often, things that were happening in Ireland were happening elsewhere as well. Second, for a long time we were hampered by an excessive dependence on a poorly performing UK economy. And third, EC membership in 1973, and the Single Market programme of the late 1980s and early 1990s, were absolutely crucial for us. Irish independence and EU membership have complemented each other, rather than being in conflict: each was required to give full effect to the other. Irish independence would not have worked as well for us as it did without the EU; and the EU would not have worked as well for us as it did without political independence.
Tomorrow we will know the recipient of the Nobel Prize in Economics. This is not a ‘true’ Nobel, coming some 50 years after Alfred Nobel established the original prizes in physics, medicine, chemistry, literature, and peace. The Swedish Central Bank established the Prize in Economic Sciences in Memory of Alfred Nobel in the late 1960s as a way to counter what it saw as the virulent spread of social democracy across Nordic countries in particular.
The Nobel Factor, a new book by Avner Offer and Gabriel Söderberg, traces the development of the Nobel Prize in economics, which grants authority and ‘Nobel magic’ to economics above other social sciences, and ensures laureates are listened to on every subject. Economics itself is seen as being more scientific, more worthy of the ears of the powerful, as a result of the Nobel prize. The impact of neoclassical economics, the dominant form of economics which emphasises market based interactions above all others on policy makers through teaching and research, is assured because of the Nobel prize.
Offer and Söderberg begin their book with what may well be the best combined explanation, intellectual history, and critique of neoclassical economics and its policy variants I’ve ever read. From there we have a discussion of the social and economic context for the creation of the prize in economic sciences, and an extended discussion of the conflict between free market and social democratic values in the Nordic states in particular. There’s a really interesting series of chapters tracing the evolution of European politics and the individual awards and their subject areas. There’s a great chapter focusing on Assar Lindbeck, a forceful personality and someone who shaped the Prize.
The story gets a little more complicated once the Prize itself evolves, because it’s not a simple case of rewarding only those who espouse ‘markets are great’ approaches, like Friedman and Hayek. For example in Chapter 7, we learn a lot about empiricists, experimentalists, econometricians and behaviouralists who won the Prize because of their rejection of equilibrium approaches to economics. In Chapter 10, the failure of economics to understand, model, or respond to the growing threats posed by unfettered global capital markets gets a very thorough treatment.
Overall I found the book riveting in that it is written in a deep and scholarly way. I buy the ‘Social Democracy vs Markets’ argument about the genesis of the economics Nobel in the 1960s, but I’m not sure the evolution of the Prize is as clear cut as it could be, after awards to people like Oliver Williamson and Lin Ostrom and Vernon Smith.
The book concludes on a hopeful note. The authors write on page 278:
“To recapture validity, economics has to come down to the ground of argument, evidence, and counterargument, supported by reason and an open mind. In the quest for valid knowledge, for those of Enlightenment disposition, it is well to ignore black boxes, the magic of prizes, and the lure of immutable laws”.
I couldn’t agree more. As intellectual, social, and political history, the Nobel Factor is well worth your time getting stuck into.
The box below should display the Nobel citation tomorrow around lunchtime.
Our text for today is Graham Gudgeon’s piece in the Irish Times, which makes a number of questionable claims.
First, he argues that
An accurate version of Ireland’s economic history is important. This is because, contrary to what we are continually told, EU membership does not seem to have had a noticeably beneficial impact on Ireland’s economic growth, even if this seemed to be the case during the great construction boom occasioned by overly low interest rates inside the euro zone.
I don’t think any economic historian or economist believes that the EU has not been massively good for Ireland’s economic growth: just compare our experiences pre- and post-1973.
Maddison’s numbers show per capita growth of 3% p.a. 1950-73, and 4.1% p.a. 1973-2008. 4.3% p.a. 1973-2000, in case you want to strip out the Celtic Bubble years and the first year of the crash. That’s before we even get into the important issue of what was happening to the number of capitas. GDP grew by 3.2% p.a. 1950-73, and by 5.1% p.a. 1973-2000. 5.0% 1973-2008. And there is an even more important point to be made. The period from 1950-73 saw extremely rapid growth throughout Western Europe: our growth rates then were disappointing in that context. Growth slowed everywhere after 1973: our growth rates since then have been very strong in that context.
Our whole development strategy has been to serve as an export platform for multinationals selling into the EU market. You might think that we should be diversifying, and I might agree, but everyone accepts that the strategy has worked, massively, to date.
From the text, it seems that Gudgin may be confusing EU and Eurozone membership. I’m one of those who thinks that the Euro has been a damaging failure, but let’s not confuse the EU, and the Single Market’s four freedoms that have worked so well for us, with a flawed monetary union.
Gudgeon then goes on to say that
In fact, as Ben Kelly has usefully reminded us, unless the British decide to stay in the EU customs union either permanently or as an interim measure (or, most implausibly, succeed in negotiating a free trade agreement with the EU within two years of Article 50 being triggered) there will have to be tariffs between Ireland and the UK. There will be no choice in the matter: for the EU not to impose tariffs on UK exports would leave it in breach of its WTO obligations. And unless the UK has zero tariffs on everything from everyone, WTO rules would similarly oblige it to impose tariffs on EU exports.
Unfortunately for us, it seems likely that the British are intent on leaving the customs union, as Robert Peston points out here. There is therefore a fairly strong possibility that we will see tariff barriers between the Republic and Northern Ireland in the not too distant future (unless the North can get a special dispensation to stay in the customs union, and the tariffs are imposed across the Irish Sea instead).
There are those who would like to see Ireland leave the EU. Expect them to argue in the years ahead that any border controls between the Republic and the North are arising because of “pressure” from the Continent. Expect them to further argue that this shows that our true friends are in London rather than the European mainland. On the contrary: any border controls that arise will be as a result of British decisions, and British decisions alone. And to date there is no indication whatsoever that those decisions are taking any heed of Irish interests.
I have a post on this subject at VoxEU, available here.
My latest Critical Quarterly column, on Ireland’s not-so-unusual economic history, is available here.
The main point of my 1999 book with Jeff Williamson was that globalisation produces both winners and losers, and that this can lead to an anti-globalisation backlash. We argued this based on late 19th century evidence, but opinion poll evidence (citations here) suggested that something similar was at work in the late 20th century as well, a hunch confirmed in the early 21st century by the 2005 and 2008 French and Irish referenda.
What was missing from all this was an analysis of what, if anything, governments can do about this. Which is where Dani Rodrik’s finding that more open states had bigger governments in the late 20th century comes in. Dani’s interpretation is that markets expose workers to risk, and that government expenditure of various sorts can help protect them from those risks. In a series of articles, and an important book, Michael Huberman showed that this correlation between states and markets was present before 1914 as well: countries with more liberal trade policies tended to have more advanced social protections of various sorts, and this helped maintain political support for openness.
Anti-immigration sentiment was clearly crucial in delivering an anti-EU vote in England. And if you talk to ordinary people, it seems clear that competition for scarce public housing and other public services was one important factor behind this. If the Tories had really wanted to maintain support for the EU, investment in public services and public housing would have been the way to do it: if these had been elastically supplied, that would have muted the impression that there was a zero-sum competition between natives and immigrants. It wouldn’t have satisfied the xenophobes, but not all anti-immigrant voters are xenophobes. But of course the Tories were never going to do that, at least not with Osborne at the helm.
If the English want continued Single Market access, they will have to swallow continued labor mobility. There are complementary domestic policies that could help in making that politically feasible. We will have to wait and see what the English decide. But there are also lessons for the 27 remaining EU states. Too much market and too little state invites a backlash. Take the politics into account, and it becomes clear (as Dani has often argued) that markets and states are complements, not substitutes.
Britain has voted to leave the European Union (EU), or more accurately, England has voted to leave. The majority in Scotland, Northern Ireland and Gibraltar voted to remain. The opinion polls, the bookies and the markets did not predict this outcome. The mood of the nation, it would seem, is becoming increasingly difficult to measure. Or is it?
There is a lot of data suggesting that ‘immigration’ was the dominant concern for those who voted to leave the EU. This should not be too surprising. In the latest Eurobarometer data, immigration was cited as the main concern of UK citizens, alongside Germany and Denmark.
According to YouGov data, which is more revealing, income was the best predictor as to whether someone intended to vote to leave or remain. Basically, the lower your income, the more inclined you were to vote leave. Some have referred to this category as ‘those with lower education’. But let’s be honest, it’s called social class.
Another predictor as to whether someone was more inclined to vote leave was age. Younger, more liberal voters, were much more supportive of remaining in the EU. The only problem with this category of voter, is that they failed to turn out en masse to vote. According to the data, electoral turnout among 18-25 year olds was fairly weak. Older conservative citizens were much more inclined to vote.
The precise data on how particular communities and constituencies across England voted is perhaps most revealing. The poorest twenty districts in England overwhelmingly voted to leave the EU. Or to get at it another way, according to this report, those areas with the most stagnant wages are the same communities with the most anti-EU attitudes.
What can we infer from all of this? What should EU policymakers infer from all of this?
The core inference is that England is a deeply class divided society, and that the poorest in England are increasingly venting their anger at immigrants and the EU. Further, and not captured in the Brexit data, right-wing political parties are now mobilising working class England.
Those same electoral constituencies most likely to vote leave, and with the most stagnant wages, are the same constituencies most likely to vote for the far-right populist UKIP party. In addition, they are the same people most likely to be discursively conscripted into the anti-immigrant lies of England’s infamous red-top tabloid press.
Class politics in England increasingly overlaps with enthno-nationalism, whereby identity and immigration, rather than economic self-interest takes precedence in shaping electoral behaviour.
In political science, there is a large literature on economic voting. One of the core findings of this literature is that in times of crisis and economic austerity, voters punish incumbent governments. This is partially what happened in the UK. Disenfranchised working class voters punished the Tories, liberal elites, the EU and the city of London.
However, the economic voting literature, whilst useful in describing why voters punish government, tells us very little about who these voters turn to, when expressing their social grievances.
In theory, those voters most affected by austerity, unemployment, underemployment and precarious work, would turn to parties on the left and those parties committed to reducing economic inequality. Most research, particularly within Europe, however, suggests, working class voters are turning to the ethno-nationalist right.
To put it simply, those affected by austerity and right-wing economic policies don’t necessarily vote in their class interest; they increasingly vote in their ethno-nationalist interest. UKIP’s economic policies are aggressively libertarian, not social democratic.
Economic liberalisation, rising inequality, and the complete free movement of peoples has social and electoral consequences. Societies will react to this disruption in different ways. Nationalism provides a sense of meaning, community and belonging, to those most affected by liberalisation. Far-right parties, such as UKIP, know this.
This realisation, however, does not seem to have seeped through to policymakers in the EU or Germany, who, despite a near complete destabilisation of the parliamentary party system in Southern, Eastern and Central Europe, remain committed to their failed neoliberal economic adjustment of austerity induced cost competitiveness.
Most political science research in the aftermath of the great recession increasingly suggests that not only are electorates losing trust in the EU, but that the support for national democracy, in general, is in decline. When the politicians change, yet the policy remains the same, voters lose trust in the institutions of liberal democracy.
The question for national leaders in the European Council, and policymakers in the European Commission, is whether they need to wait for the election of Trump in the US, Le Penn in France, or the Five Star Movement in Italy, to realise that their economic policy response to the crisis has failed, and must fundamentally change?
Polities disintegrate when they begin to loose control of their external borders and their internal legitimacy. Or, as W.B Yeats poignantly wrote in 1919, “things fall apart; the centre cannot hold; mere anarchy is loosed upon the world“. The UK and the EU are now faced with the potential for disorderly disintegration. Political scientists are accustomed to thinking that ‘more EU integration’ is inevitable. This is wrong.
Yeats wrote this after WW1, which coincided with the end of the first wave of free-market globalisation, when economic inequality peaked, much like today. In many ways Brexit can be interpreted as Europe’s Polanyi moment. It was a counter-reaction to a political economic system that is perceived to be designed in the interest of the comfortable elite.
It would be naive to assume that the popular reaction to rising inequality, precarious work, economic uncertainty, liberal elites and fear of immigration will lead to something politically progressive. The wave of anti-immigrant, nationalist sentiment, sweeping England, clearly shows that it won’t. France could be next. The EU should not wait to find out.