Everything you need to know about Lexit in five minutes

Lexit arguments are popular among the Labour leadership, but studies suggest the EU is no impediment to Corbyn's political programme
Lexit arguments are popular among the Labour leadership, but studies suggest the EU is no impediment to Corbyn's political programme
Ian Dunt By

What's Lexit and why is everything just a series of dreadful portmanteaus now?

It's the left-wing case for Brexit.

The idea there's a left-wing case for Brexit is… imaginative. Have they seen the smile on Jacob Rees Mogg's face? He looks like he's about to be served a seven course dinner.

Yesh, it's not a majority view. Most left-wing figures in politics, journalism, academia and trade unionism are very critical of Brexit. But it's a significant minority view and one that dominates in the Labour leadership. Left-wing attacks of the EU have a long political heritage and include some much-loved figures on the left, like Tony Benn. They're not without content either. There are some powerful left-wing critiques of the project.

OK, I'm prepped. I have whisky, cigars and diazepam. Give it to me straight. What are the arguments?

Well they're divided into three really - freedom of movement for employers, freedom of movement for workers and state aid.

What's this freedom of movement for employers? I've never heard of it.

It's where a business shifts operations across the continent. This takes a couple of forms. They either move employees overseas to do a job - these are called 'posted workers'. Or they try to base themselves legally in that country via a subsidiary.

Let me guess. The country they base themselves in or send workers from always has lower wages and working conditions.

Got it in one. Some people call this 'social dumping'. It's about undercutting local wages and conditions by shipping in workers from overseas or basing your company's legal status on wherever saves you the most money.

What kind of things are we talking about here?

Let's be clear on the limitations. You can't break the law in the country you're operating in. You can't pay less than the minimum wage. You can't ignore their domestic work legislation, like health and safety rules.This is about what has been secured by employees above the legal limit.

Like tea breaks.

Yeah exactly. Guaranteed morning tea breaks or higher rates for extra hours. That type of thing.



This is just a natural side effect of having a single market, isn't it? Firms get to move around freely.

Sure, but there are competing interests at stake - those of workers and those of bosses - and the European Court of Justice (ECJ) has often sided with the latter. There are two cases which put quite severe restrictions on the right to strike where companies were doing this stuff: Laval and Viking. Viking is the worst of the two, so it's the best one to focus on.

Go on.

Viking Line operated a ferry between Finland and Estonia, under a Finnish flag and an arrangement with the Finnish Seaman's Union. It paid high Finnish wages and abided by high Finnish worker standards and, as a consequence, it made a loss. So they came up with a sneaky idea. They reflagged the ferry the other way round. The Finnish union got terribly upset about it and won support from the  International Transport Workers' Federation, which asked all affiliated unions not to negotiate with Viking Line. The company backed down.

Marvellous. Workers of the world unite. You have nothing to lose but your ferry contracts.

It looked that way, but then Estonia joined the EU. This allowed the firm to take its case to court and say that the unions had contravened their freedom of establishment, which is guaranteed under EU law.

So how did the case go?

Badly. There's no beating around the bush here. This is a bad ruling. It did a lot of damage to worker rights in the EU.

How so?

It ruled that strikes have to be compatible with EU law, so where they had the effect of limiting freedom of movement or association, they were unlawful. It also included a troubling requirement of 'proportionality', which made the legality of a strike dependant on whether the union had tried to resolve the dispute.

That doesn't seem wholly unfair. You raving commie.

The problem is how imbalanced it is. It loads the burden of proof in favour of the employer. They can just tell the court that a deal was just around the corner if the union hadn't walked away from the table – no matter what the reality of the situation was. On the other hand, the strike only needs to infringe on a tiny aspect of EU law for it to run into legal problems.

I see. This is pretty far-reaching stuff, then.

It's more limited than it sounds. These conditions are not for all strikes. They are just for disputes across EU member states. Domestic strikes fall under domestic law. So the rules only affect a few firms. But that's not a lot of help if you work for a firm like British Airways. 



What was the political reaction to this?

There's pretty widespread recognition that the ECJ got the balance wrong here. The underlying posted worker system is being reformed. New French president Emmanuel Macron has managed to secure quite extensive changes to improve the system. But the Viking ruling still stands.

That diazepam is really starting to kick in now. I have a strange sense of calm.

Good. Let's talk about free movement for workers. That'll put paid to that.

OK now this I've heard of. All of Poland came to the UK one day. It turns out every single one of them was a plumber. British wages fell. The working class turned against immigration and now here we are.

That's the story. Lexiters often argue that we were particularly susceptible to the effects of a sudden immigration wave because we have a liberal jobs market. Britain doesn't have the sort of institutionalised sectoral wage bargaining you see in France and Germany. So suddenly you get this big supply of new cheap labour and wages start to fall.

This is unarguable, surely. It's basic supply and demand.

It's certainly intuitive. But there's a problem with it. It's not true.

That is exactly the kind of thing I would expect a metropolitan liberal elitist to say.

You joke, but Lexiters often suggest that economists don't research this stuff because they wouldn't like the answers. The truth is: they have, and the answers aren't ones the Lexiters like. The data does not show a major reduction in wages as a result of immigration, either at a sectoral or an aggregate level.

This makes no sense though. How can lots of cheap labour flood the market and not result in a decline in wages?

Immigrants are quite complex economic units. They don't just take jobs, they consume in other areas, from renting flats to taking weekend breaks to visiting a local cafe. So it's possible they stimulated demand in a way that maintained wage levels. Plus they seem to improve productivity in the sectors they work in, by bringing in new ideas, or new contacts, or new types of client because of their language skills.

So there are no studies showing a negative impact on wages from migration?

Most show a neutral or positive effect. Some show a very limited negative effect.




Aha, got you. You're trying to get a "very limited" by me. How limited is "very limited", you slippery bastard?

Very. Take the study by Stephen Nickell and Jumana Saleheen, which is a favourite of the Brexiters. It's been regularly cited by Iain Duncan Smith, Nigel Farage and Gisela Stuart. They love it. But what does it actually show? That high rates of migration result in a one per cent fall in wages for low-skilled workers over eight years. In an interview with the Independent, Nickell called the effect of migration on wages "infinitesimally small".

Easy for you to say. You're not a low-skilled worker. Although given all you do is blather into a laptop all day, I am admittedly struggling to imagine exactly what your skills are. A one per cent drop in wages is still important when you're not well off.

Accepted. But cutting immigration would result in a more significant economic impact for exactly that kind of worker. Britain has too many old people. And we don't have enough people of working age to pay taxes to fund their pensions, healthcare and social care. If we cut immigration, we need to raise taxes and cut public services and welfare. And that hits the poor hardest.



Might I point out to you that you have so far covered only two of your three topics but that you promised you would have this done in five minutes?

I am consistently unreliable on this matter. Imagine it's sometime in the future. Christmas say. You're having an argument about the EU over a family dinner.

I can picture that very easily.

Well now I'm going to give you information which will make you look intellectually superior.

OK. I no longer care about the time. Take as long as you need.

Alright let's do state aid – the last part of the puzzle. This is the bit Corbyn seems to care the most about. Basically, the EU is considered an impediment to socialist government.

Is it?

It depends what you mean by socialism. If you mean Bolshevik Communism, then it absolutely is. If you mean Scandinavian-style social democracy, it is not.

The fact most Scandinavian countries are in the EU is kind of a giveaway I suppose.

Yep. OK so most importantly, let's get one thing absolutely clear. The EU is not an obstacle to national ownership of anything. Part seven, article 345, of the general and final provisions of the Treaty on the Functioning of the European Union….

You're such a dick.

...is explicit about this. It says: "The treaties shall in no way prejudice the rules in member states governing the system of property ownership." The EU can't stop you taking the railways, say, or water, into public ownership. Nor can it stop a government becoming the majority shareholder in a car firm.

OK so what can it do?

It can prevent the emergence of a monopoly, whether it is private or public. It ensures competition in provision. Public providers must be treated on an equal footing to private ones and any state subsidy must be available to all operators, whether private or public.

I'm not a big fan of the word neo-liberal but I'm going to stick my neck out here and say that that sounds pretty bloody neo-liberal to me.

Not really. Remember that a lot of subsidies go to multinational corporations. The EU requirements force governments make their state aid payments transparent and demonstrate what type of behaviour they're intended to incentivise. This stops multinational corporations from holding nation states to ransom. Outside the EU, they can just tour national capitals, demanding ever-greater subsidies as the price of keeping them there.



OK fine, but you're still describing a system which forces states to put public services out to tender. And I'm presuming that includes rail and hip operations and all that.

That's what it looks like, but it doesn't work out that way. There are a series of exemptions which allow you to dodge the state aid rules. The most important exemption is on market failure, where the forces of competition are not able to create the desired outcome. There are loads of areas where you can easily make this case, from healthcare, to rural train services, to fibre-optic broadband. And there are other exemptions, which are very wide. Governments can dodge state aid to "facilitate the development of certain economic activities", for instance, or to fulfil "universal service" obligations. You don't need to be a lawyer to see how you can work your way around that kind of broad category.

Have we?

Well Britain is typically rather keener on the free market than Europe is, so that hasn't really been the standard. But you might remember that we nationalised half our banking sector during the financial crash and no-one in Brussels complained about that.

And the rest of Europe?

They work their way around the rules very confidently. University tuition is taxpayer funded in France. Train companies are in public hands there too, as they are in Spain, Holland, Austria and Belgium. Germany has a massive network of public-owned savings banks. The city of Hamburg recently voted to take complete control of their power grid from private companies. You can easily pursue a political programme that is miles to the left of anything the UK ever does without butting heads with state aid rules.

Is this all about the exemptions?

No, you can also be sneaky about the way you handle the tendering process too. One way is to price non-public companies out. Germany does this with trains all the time. The Berlin city transport authority, for instance, recently insisted those applying to operate the S-Bahn network supply new rolling stock worth €1bn - and even then only under extremely strict conditions. Unsurprisingly, only Deutsche Bahn tendered and it will duly receive €250m a year from the federal government. It's obviously a stitch up, but they get away with it.

Devious bastards.

Yep. Also, remember that state aid is just one aspect of the EU, set up to make sure countries can't just prop up their domestic businesses to outcompete those of other countries in the single market. But the system is explicitly designed to promote progressive ends. The founding documents of the EU read like the manifesto of a social democratic party.

You're going to read one out aren't you?

No, but let me give you excerpts. The Lisbon treaty, for instance, aims to establish a "social market economy", with "social progress" and "high levels of protection", which rejects "social exclusion and discrimination" and promotes "social justice" and "equality between women and men". That's literally stamped into the political DNA of the EU system. It explicitly protects workers' health and safety, working conditions, social protection, redundancy terms, access to information, collective defence arrangements and more. And, of course, it directs development fund towards regions that are economically struggling. You can make lots of complaints about the EU, but the charge that it is neoliberal is way off the mark.

You can see why Corbyn doesn't like it, though. Those state aid rules would prevent his socialist project.

No. He could get the whole of his 2017 manifesto through. Researchers Andy Tarrant and Andrea Biondi looked into its 26 specific economic proposals and found that 17 did not fall into the remit of state aid rules at all, seven came within block exemptions, and just two would require notification to the Commission.

What were those two?

One was on a state investment bank and the other on a state-funded regional energy provider. In both cases, the researchers concluded that you could easily structure them to clear the rules.

So Corbyn has nothing to fear.

Nope.

Is this over now? Please tell me it's over.

It's over.

What's the take-away message?

The EU is basically a social democrat project, based along German or Scandinavian lines. That's probably too right-wing for some people, and it's certainly too left wing for others. But it has a lot of space there for a wide range of political arrangements, covering the vast majority of political views in the UK. It doesn't always get the relationship right between abiding by EU rules and workers' rights, but you have to be a very stern observer to conclude from these fairly limited problems that we should take the massive risk of leaving the EU altogether, especially under such a right wing government. But still, we shouldn't write off left wing criticisms of the EU. Many of them are perfectly valid. Remainers would do well to address them, rather than dismiss them.

Whatever. If I lose a political argument over Christmas, I'm blaming you.

That seems fair.

Ian Dunt is the editor of Politics.co.uk. The new edition of his book - Brexit: What The Hell Happens Now? - is out now.

The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.

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