In even thinking about leaving the EU Single Market, the UK is heading full steam towards an iceberg of historic proportions. This will tear apart the British economy and bring Labour down with it unless Jeremy Corbyn changes course, writes Matthew L Bishop. 

We are plausibly living through the endgame of a neoliberalism that has drastically over-reached itself. The great value of Corbynism is its recognition of this reality. It is why I voted for Jeremy Corbyn to lead Labour twice, and also why I was not entirely surprised by the election result.

Labour suffered a precipitous decline in support after the mid-2000s because of an absence of a convincing narrative, and an unwillingness to decisively challenge the decaying neoliberal ‘consensus’. The party’s fortunes have changed now that it has offered something different. We can of course argue about whether Corbynism is really a radical departure or not, something Matt Bolton has done very eloquently. Regardless, there is no doubt that in June, for the first time since 2001, millions of people voted enthusiastically for Labour, rather than grudgingly against the alternatives.

However – and this is the great tragedy – the party today, in signing up to the foolhardy Brexiteer plan to leave the European Single Market (ESM), is rushing headlong towards a strategic disaster which will probably destroy Jeremy Corbyn just as it will the Tories.

A problematic consensus

Both the Conservative and Labour leaderships have reached essentially the same position on the economics of Brexit, albeit via different routes. The former seem to think that removing the country from the most highly integrated free market ever envisioned – by Margaret Thatcher of all people – will actually be good for business and economic freedom, despite the fact that UK firms are almost united in their opposition to it. I find it astonishing that a Conservative government is taking such a cavalier attitude towards the opinions of business, and such enormous risks with the economy. The latter, by contrast, seem to think that exiting the ESM is a necessary precursor to building the kind of interventionist state that is desperately needed to retool the economy via a serious industrial strategy.

Both are dangerously misguided, and we are consequently hurtling towards an iceberg of Titanic proportions. The Labour approach, which effectively mimics that of the ‘hard’ Brexiteers is particularly troubling, despite Keir Starmer’s clever but confusing positioning on the issue. The Shadow Brexit Secretary has played an impossible hand brilliantly, particularly politically, and clearly has a far higher grasp of the technical detail than his counterparts on the opposite benches who are actually supposed to be doing the negotiating.

One welcome recent development is the prospect that transitional arrangements which delay a hard Brexit (i.e. leaving the ESM) might be possible. However, there is no expectation at present that this delay could turn into a decisive retreat. Starmer’s view still seems to be that ultimately leaving the ESM is necessary because Britain could not tolerate the lack of sovereignty implied by being party to essentially the same commitments as now, under European Court of Justice (ECJ) jurisdiction, but as a rule-taker with no say over how those rules are constructed. Plus, of course, there is the commitment to ending free movement – which is sadly always framed as being about stopping people migrating to the UK, rather than as extinguishing the amazing opportunity for Britons to freely live and work in 27 other countries – to which Labour seems unfortunately as wedded as the Tories.

Starmer is, of course, right that leaving the ESM – but trying to gain maximum access to it – is, in this narrow technical sense, the only conceivable way to attempt to reconcile these competing priorities. For now, the politics are in his favour too: there is still a large constituency for a substantial form of Brexit, and they will surely scream betrayal if this is not followed through.

Sovereignty or prosperity?

Yet too few are thinking about the economics of all of this, and they trump the politics many times over. Put simply: membership of the ESM is absolutely critical to our prosperity as a nation. What happens if we do indeed leave and it decimates the economy? Will Labour have made the right choice between an increasingly worthless and pyrrhic sovereignty, on the one hand, and jobs and living standards on the other? The political mood, as Corbyn himself has shown, can change very rapidly indeed.

Part of the problem is that so few people – in an economically illiterate nation – seem to actually grasp the enormity of what is at stake, and therefore the possible (even likely) consequences of leaving the ESM. Few comprehend how weak our negotiating hand is and how limited our options actually are outside of the market. I have written previously (here and here) about how, particularly on the Conservative side, this myopia stems from a fundamental and wilful misunderstanding of contemporary trade politics, typified by an unreconstructed delusional imperial nostalgia. Yet on the Labour side, too, there exists a discernible degree of blasé nonchalance that is the equal of that emanating from the Brexiteers.

This is typified by Corbyn’s infuriating tendency to talk – in line with Starmer’s increasingly improbable balancing act – about ‘tariff-free access to’ (rather than ‘membership of’) the ESM. Tariffs certainly matter for the car industry, one of our few remaining major value-added goods export sectors, although this is under serious threat anyway from the EU-Japan trade deal.

Still, tariffs remain a relative sideshow, and ‘access’ is broadly meaningless when the value of the single market derives specifically from comprehensively regulating cross-EU production and trade by allowing firms to operate – i.e. perform myriad different functions other than simply sending goods across borders – in that single regulatory space. For the UK this is all magnified many times over given our outsize dependence on services, for which tariffs barely matter at all, and regulatory equivalence – which can only be ensured by being inside the ESM – is both absolutely critical and unremittingly arduous to renegotiate once it has been lost. The EU has been clear all along about this: the ‘four freedoms’ of the ESM are ‘indivisible’. If they were not – and states could enjoy differing degrees of membership for either their sole benefit or for anything other than a temporary period – the market, by definition, would cease to be ‘single’.

This is why Labour’s objective of achieving the ‘exact same benefits’ of ESM membership after leaving is also delusional: those benefits are, and can only be, available to members!

Clouds on the horizon

If we do actually leave the ESM, particularly in a disorderly fashion – which is surely the only imaginable way once panic starts to set in – our firms will be immediately unable to operate in the value chains in which they are presently deeply enmeshed, and no amount of ‘tariff-free access’ for their tradable products will alter or cushion that. There is only one logic here: they will have to move all or part of their operations – and do so well in advance of the turmoil unleashed by our exit – and the economic impact will not simply be a minor shock and some lost GDP.

Rather, we may be potentially facing a correction on a larger scale than anything we have witnessed in modern British history: Black Wednesday ‘on steroids’, if you will.

If both the Conservatives and Labour are serious about extricating the UK economy from the ESM it is fairly clear that swaths of activity that is presently integrated in EU-wide value chains will have to shift to the continent. This is why even just the suggestion that this might happen has seen many firms implement an investment strike and start activating contingency plans to offshore (or is it onshore?) investment to the European mainland. The trickle could soon become a flood. It takes no great leap of imagination to conceive of a situation – in a country that is highly open, massively over-leveraged in terms of public and private debt, and hugely dependent on foreign capital – where firms begin to announce substantial disinvestment, money starts to be removed from the London housing market, prices start to tank, putting untold pressure on sterling, and a negative death spiral ensues.

Most worryingly, this could begin very suddenly and unfold very rapidly, and, given the embarrassingly abject, slapdash government approach to Brexit, this traumatic reckoning could come sooner than we might expect. If neither clarity about the future, nor a guarantee that we will remain in the ESM are forthcoming, I fear that the markets will eventually demonstrate, as they did in September 1992, just how much ‘control’ the government actually enjoys. Such a catastrophic loss of confidence in the economy would be, for a country that already cuts a diminished figure globally, a ‘national humiliation’ of the highest order.

Labour’s avoidable iceberg

It is unlikely, moreover, that Corbyn’s Labour – fully implicated as it will be in the disaster – will victoriously emerge to pick up the pieces, and woe betide the politicians (all 500+ of them) tarnished with enabling it when the front pages are filled with litanies of economic calamity. The narrative will no longer be: ‘we want our sovereignty back’. It will rather be: ‘why on earth didn’t Corbyn and his party stand up in the national interest and stop this nightmare from happening?’ His project would be dead on arrival. The idea that Labour can simply wait for the Tories to implode over Brexit while harbouring basically the same policy towards the ESM is reckless and foolish – not ‘savvy and astute’ as it was recently described – particularly if the kind of economic cataclysm I have described here comes to pass before they actually do so (or, of course, the Tories outflank them on the left and implement a form of soft Brexit that Labour would, presumably, now oppose in favour of something harder).

Labour’s strategy has to be considerably more cognisant of the scale of economic danger. The broad goal, in a world where neoliberalism is collapsing under the weight of its own contradictions, is not to forego globalisation altogether and risk such short-term economic ruin that it kills a sensible long-term left-of-centre alternative. Put differently: socialism in one country does not work.

The twin objectives of any social democratic party are to simultaneously maintain and reconcile an outward-oriented, internationalist, liberal orientation, whilst rebuilding the public realm and advancing a meaningful industrial strategy. These two things are not mutually exclusive. The latter is not truly precluded by membership of the ESM, as the Labour leadership seems to believe, and leaving it will, paradoxically, make it even more difficult to realise given the staggering economic crisis it could provoke. In any case, EU regulation does not just serve the interests of capital, and, in an increasingly dangerous world, we have a far better chance of defending the kinds of meaningful worker, consumer and environmental protections that Labour supposedly stands for at a continental rather than national level.

The EU and the ESM are also not static. They can evolve in a less market fundamentalist direction with the right leadership in an auspicious context. This is why ‘Lexit’ remains a chimera: its purported objectives would be better served by staying in, and reforming from within, rather than the left being complicit in hitting an avoidable iceberg that will eviscerate it too. The neoliberals know all too well how to exploit disaster capitalism to reproduce, extend and defend their project. Corbyn should avoid giving them that opportunity.

This post represents the views of the author and not those of the Brexit blog, nor the LSE. A longer version of it first appeared at the SPERI blog.

Matthew L Bishop is an Associate Fellow at SPERI and Senior Lecturer in International Politics, University of Sheffield.