INTRODUCTION

The results of the EU referendum showed profound spatial differences in opinion across the UK. Inequality has been widely discussed as a major factor explaining these differences, with some of the highest shares of the Leave vote in areas experiencing greatest economic difficulty, especially in northern England and Wales. The UK Government appears to share this view, with the prime minister making a series of political commitments to address inequality. The new industrial policy of the renamed Department of Business, Energy and Industrial Strategy includes recognition of the “importance of place”.

The question is how the rhetoric will be translated into practice. A once powerful domestic UK-wide regional policy has been largely whittled away, with divergent approaches to regional development following devolution and the disappearance of regional development institutions and instruments, superseded by local and urban initiatives with variable resources, coherence or permanence. The one policy that has been maintained over the long term will be phased out as part of Brexit. This is EU structural funds – which is currently providing an allocation of £10 billion of EU funding to the UK over the 2014–20 period.

This provides a challenge and an opportunity to the UK government and to the devolved administrations. The loss of EU structural funds significantly affects the “Less-Developed Regions” of West Wales & the Valleys, Cornwall & the Isles of Scilly, as well as in the former industrial regions that were major beneficiaries of EU funding, not least those that could have anticipated significantly more EU receipts after 2020, such as Tees Valley and Durham. While the UK government has guaranteed funding for any structural funds projects approved until the UK leaves the EU, it has not made any commitments to replacement funding for recipient regions thereafter.

Resources are not the only issue. EU cohesion policy provided stability through multi-annual programmes, promoted a strategic and integrated approach to development and required partnership-working between central and subnational levels of government. Although the technical administration of EU funding has become increasingly complex and prescriptive, its disappearance will leave a void.

The UK’s automotive industry has been one of the “star performers” of the UK economy in recent years – unlike many other manufacturing sectors. Output has increased by 60 per cent since 2010 and there has been over £8 billion worth of investment in the industry in the last four years (SMMT 2016a). The industry supports some 800,000 jobs in total in the UK. This upturn has benefitted regions, such as the West Midlands which have struggled with deindustrialization, plant closures and the legacy of the global financial crisis (Bailey & Berkeley 2014; Bailey et al. 2015; Bailey & de Ruyter 2015). There are many reasons for this recent automotive industry success – the skills base, cooperative working between unions and management, links with universities, a supportive industrial policy and so on. But it should also be noted that a key factor for the success has also been access to the EU single market. Indeed, the industry is seen as having benefitted from EU membership, and not only in accessing the single market, but also through the EU cutting trade deals with the rest of the world, in the UK influencing EU regulations, and in accessing skilled workers and European research funding and networks (KPMG 2014). So what might Britain’s departure from the EU mean for the UK automotive sector (hereafter “UK auto”), and in turn for industrial policy in the UK?

This chapter considers short run impacts, before turning to the effect of uncertainty on foreign direct investment (FDI) inflows, firm specific impacts, the nature of a possible trading relationship, and the need for a renewed industrial policy to support UK auto and manufacturing.

SHORT-RUN MARKET AND PRODUCTION IMPACTS

A starting point in understanding the impact of the Brexit vote on the UK auto industry is to consider its impact on the wider UK economy, both in terms of economic growth and the value of sterling. For example, a possible slowdown in economic growth is likely to impact on car sales in the UK, so at best car sales are likely to grow more slowly than otherwise and at worst may fall.

INTRODUCTION

The vote to leave the EU has set in train a series of profound changes to more than just the political economy of the UK: it is an oft-repeated mistake to assume that Brexit is about Britain alone. It is about far more. The vote immediately changed the nature of the EU’s relations with the UK, and foreshadows a much deeper change that will shape Britain and Europe once a new relationship – both formal and informal outside the EU – emerges. The vote has also triggered changes within the EU, an often-overlooked aspect of the Brexit debate, which it will be vital to understand. An EU that is different to what we know today, could be the most profound outcome of the Brexit vote. In addition, the vote means a change to the geopolitics of Europe by potentially changing both the UK and the EU and their position within a wider European political network. The vote means one of the core European members of the transatlantic relationship – the UK is its largest and leading European proponent – will no longer be a member of Europe’s predominant organization for politics, economics, social and non-traditional security matters.

This raises a series of questions in the USA about the US–UK, US–EU and US–European/NATO relationships. The vote itself, like that of the election of Donald Trump, was viewed as a weathervane of Western political debate, with the outcome seen by some as a sign of a wider and growing rejection of some of the ideas that have defined European politics, transatlantic relations and international relations since 1989: notably a liberal internationalist agenda of sharing sovereignty and viewing globalization and integration as a force for good. Finally, as an unprecedented development for the EU – a sui generis organization – the vote raises questions about the nature of European integration and whether the march towards ever-deeper integration has been taken for granted by both policy-makers and academics.

To look at this debate in more detail this chapter examines four topics. They revolve around the 13 Brexit negotiations and debates that are now unfolding in the UK, Europe and elsewhere (Oliver 2016).

INTRODUCTION: CONVERGENCE AND VARIATIONS

In this chapter, we attempt to draw some lessons from Greece that might be applicable to the Brexit debate and the political economy of the post- Brexit era. The use of the term “exit” to describe a possible walk-out from the Eurozone (or the European Union) was initially coined in the case of Greece. For many years, in the wake of the Greek sovereign debt crisis, Grexit has been usually linked to the (additionally) negative economic and political consequences that an exit from the Eurozone would imply. Some economists, commentators and political analysts saw Grexit as inevitable; a few tried to see the exit as a positive scenario or a radical/simple solution to the Greek predicament. For the majority of the relevant discussions and analyses, the Grexit scenario was mostly seen as the “nuclear option”, to use Krugman’s pessimistic expression (Krugman 2012).

The announcement of a forthcoming UK referendum by David Cameron after the elections in May 2015 automatically boosted a new “exit” term: this time it was Brexit. But in many different respects the UK is not like Greece, so Brexit took different meanings and developed its own political dynamics as a term in public discussions and debates. The UK is a key G7 economy. It is not part of the Eurozone. It has its own currency and an independent central bank. Its international economic and political role is unquestionably very different from that of Greece. The UK did not suffer a severe sovereign debt crisis; on the contrary, after the 2008 global financial meltdown, government borrowing costs reached historically low levels that, in practical terms, increased the fiscal space of the Treasury. The UK’s EU membership referendum took place at a period of relative economic prosperity and, despite the outcome, the future growth prospects in the short to medium term are still positive.

INTRODUCTION

The decision of the UK to leave the EU runs counter to recent trends towards further integration in most parts of the world. Over recent decades a range of customs unions (CUs), free trade agreements (FTAs) and economic unions (EcUs) have been established and have significantly expanded their membership. These include, among others, the Association of Southeast Asian Nations (ASEAN), the Caribbean Single Market and Economy (CSME), the Gulf Cooperation Council (GCC), the Southern Common Market (MERCOSUR), the North American Free Trade Association (NAFTA), the Commonwealth of Independent States Free Trade Area (CISFTA), the Trans-Pacific Trade Partnership (TTP) and the Eurasian Economic Union (EEU), and their members now account for 153 (80%) of the 192 countries that are members of the United Nations. In addition a large number of proposed agreements are also being negotiated, and indeed a number of countries, such as Turkey, Serbia, Montenegro and Albania, are looking to join the EU.

This increased integration has been both a driver and an effect of globalization. Reduced trade barriers through customs and other economic unions as well as adherence to World Trade Organization rules has made a more fragmented production system possible where inputs are sourced internationally (Feenstra 1998).

While the UK’s decision to turn its back on the EU runs counter to the trends of recent decades it is not unprecedented. In 1985 Greenland voted to leave the EU and Algeria, which was an integral part of France, seceded from France in 1962, although that was not a decision against the then EEC.

A number of different existing arrangements between the EU and other countries have been suggested as possible models for the relationship between the EU and the UK. One often cited model is the relationship between Norway and the EU. As this model involves full access to the markets of the EU and the UK respectively it would have the least real economic impact. However, the arrangement between the EU and Norway entails free movement of people and labour, participation in the common external border, accepting almost all EU directives and significant financial contributions by Norway to the EU budget, which means that this arrangement amounts to something resembling EU membership but without voting rights.

In his famous essay The Eighteenth Brumaire of Louis Bonaparte, published in 1852, Karl Marx noted that history repeats itself, “once as tragedy, and again as farce”. He was referring to Napoleon I and his nephew Napoleon III, with respect to the latter seizing power and implementing a dictatorship in France in 1851. For many the tragedy of Brexit in the UK was followed by the farce of the election of Donald Trump as the 45th president of the United States. The same aphorism could be applied to the Italian Referendum, in which the No vote prevailing led to the resignation of the prime minister, Matteo Renzi. How tragedy and farce will play out in the forthcoming elections in other European countries, especially France and Germany in 2017, is, at the time of writing, anybody’s guess, although the defeat of a far-right candidate in the Austrian presidential election may be a cause for some optimism. Some commentators have suggested that the rising nationalist populism in the US and Europe is a sign of the end of the liberal order. Yet this liberal order has brought us increasing inequality, austerity and growing poverty for those people and places early in the twenty-first century. They have been left behind within the great unravelling of the global economy since the global financial crisis that began in late 2007.

But these moments and intervals of shock and fracture are nothing new, especially in Europe. In his masterly study The Shock of the New: Art and the Century of Change the Australian art historian Robert Hughes wrote:

In his book Capital in the Twenty-First Century Thomas Piketty deploys three sources of evidence: first, aggregate data deduced from national accounts; second, sources related to the distribution of income; and third, evidence concerning the distribution of wealth in the population. In his treatment of income distribution in France, the latter two sources are related to the specifics of tax collection over the last two centuries, and the organized and careful recording of the data in simple and informative tables that can be analysed with a view to drawing aggregate conclusions.

From Piketty’s work two conclusions are clear and undisputed: relative to the inequality experienced in the second half of the nineteenth century, wealth and income inequality were reduced substantially after the Second World War, following the destruction of assets caused by the war. This reduction in both forms of inequality persisted for the next thirty years or so. Piketty focuses on inequality at the top of the income or wealth distribution because these are characterized best in the sources he uses. However, since the 1980s inequality has increased in both dimensions and Piketty’s prediction is that, in the future, it will resemble the inequality that characterized the distribution of income and wealth in the last part of the nineteenth century.

What happens in the first half of the twentieth century is outlined using aggregate evidence drawn from the national accounts, using reconstructed data for the years before 1950, and reporting a measure of aggregate return on capital. This evidence has been the source of some criticism, mostly because of the aggregate nature of the measurement that national accounts provide, and because of the difficulty in accounting for the differences between the three types of measurement in Piketty’s work: income, wealth and capital.

The book does, however, provide a framework for relating these three concepts and supporting the main predictions that are made. The analysis favours the accumulation channel, whereby the value of today’s total output is divided between labour income, capital income and investment (into physical capital). This in turn determines tomorrow’s production.

The historian Amintore Fanfani’s work has important things to say about the nature of our form of capitalism, and specifically about Italian and European capitalism. In a work, like this, on the classics and the ideas of the civil economy, it is worth bringing Fanfani’s ideas back into the collective memory, even if briefly.

The Protestant Reformation left a profound mark on modern culture, and it should not be surprising that the spirit of modernity and the spirit of the Reformation are tightly interwoven. There was a period of thought from the end of the nineteenth century until the 1930s in which there was great interest in the historical causes and roots of modernity, its relationship to the Reformation, and the reactions against it (we will summarily call this the Catholic Counter Reformation, knowing that the expression was and is ambiguous). Giuseppe Toniolo, Werner Sombart, Lujo Brentano, Gino Luzzatto, Amintore Fanfani and Max Weber were historians and social scientists who made the thought and work of Martin Luther and the other sixteenth-century reformers (Calvin in particular) the axis around which they reconstructed the coordinates of modernity. They gave special attention to the birth of capitalism, which they considered an ethos, or “spirit” of modernity, thus something far more general and pervasive than just the economics (production, savings, circulation and consumption) of European and Western societies. Placing the accent on “spirit” – a very common expression in the modern social sciences from Montesquieu to Weber – meant emphasizing that capitalism was not just material in nature, thus affirming that entrepreneurs, bankers, consumers and other protagonists see the market and companies as much more than the supply and demand of goods mediated by money. This concept was also present in Marx, and in the twentieth century it was developed by such thinkers as Ernst Block and Walter Benjamin (as well as by Weber). If we do not grasp the “religious”, symbolic and “spiritual” nature of capitalism, it is difficult to understand the sola fide that is the basis for speculative finance, and that has lost all ties with the res (the real side of the economic problem).

Antonio Genovesi (1713–69) is the best-known writer on the civil economy. And for good reason: he linked his principal work, Lezioni di economia civile (Lessons of Civil Economy, 1765–70) to the expression “civil economy”. In Italy and other Latin countries, and in Germany as well, he represented a universal point of reference for the school of civil economy. He was also noted for his creativity, and for having been appointed in 1754 to the Chair of Commerce and Mechanics (i.e. civil economy), instituted by the Tuscan reformer Bartolomeo Intieri, at the University of Naples. We will not associate him with a particular pillar of the civil economy as we will with other authors in the following chapters, because he was “everyone’s teacher”.

It was in this same reformist context that Ferdinando Galiani (1728–87) published Della Moneta (On Money) in 1751, one of the most original and important works in eighteenth-century Europe, and which helped to raise Genovesi’s profile as an economist. In fact, Genovesi was entrusted with the first chair of economics in Europe for which we have any trace; Intieri desired and financed the chair on condition that Genovesi be appointed to it and that the lessons be in Italian, which was itself a specific educational and reformist choice. A chair actually entitled Chair of Civil Economy was also instituted in Modena in 1772. Francesco III d’Este, Duke of Modena, appointed Agostino Paradisi to it; he was a more multi-faceted figure than simply an economist. The manuscript of his Lezioni (Lessons), which is clearly derived from Genovesi, is preserved in the Library of Modena and Reggio Emilia; their value awaits rediscovery. Sometimes unintended consequences bring good results, as illustrated with Genovesi’s expulsion from the field of theology: he devoted the last fifteen years of his life almost exclusively to economics, ethics and anthropology, and his teachings became recognized throughout Enlightenment Europe.

Opening a new factory at Pozzuoli, near Naples, on 23 April 1955, Adriano Olivetti gave a memorable speech to the workers. The following is an excerpt:

At a time when it was broadly accepted that the cause–effect dynamic was sufficient to understand the world, Olivetti did not hesitate in stating that a company that wants to consider itself civilly responsible cannot avoid the question of the purpose for which something is done or considered good. It is interesting to compare Olivetti’s words with those of Michael Hammer, one of the best-selling business and management authors:

If we look carefully at the debate on corporate social responsibility (CSR) today, we see a problematic framework emerging. To understand why, it is necessary to frame the new phenomenon of CSR within the ethical and civil valuation of the market economy.