What have we learned from this referendum campaign, the passions and fears that it unleashed? Were the electorate truly energised by the question, to leave or remain, or were they asking quite other questions than that on the ballot paper? Was this a national – and rational - debate about our membership of the European Union - or a mix of quite different hopes and especially fears, using this referendum as a brief opportunity to express themselves?
These questions arise most fundamentally for Labour, as they sense the gap that has opened up, between the internationalism of their London-based elite and their traditional supporters in the Midlands and the North. If Cameron, with his divided party, was forced to look Left for some hope, Labour was itself forced to look to its progressive middle class and younger supporters.
How did we get to this situation? How in particular did immigration divide Labour from its base?
Immigration into the UK over the last decade has been 5.77 million. Many have gone into areas of low-cost accommodation, alongside the working class households from whom Labour traditionally drew its support. True, there has been emigration of 3.48 million (meaning net immigration has been 2.49 million) but not necessarily out of those same localities. During the same period, austerity and recession have meant cuts in public services, in jobs and in benefits, which have hit those same areas particularly hard. Is it so surprising that established residents should infer a causal connection? And is it surprising that they should feel insecure and abandoned?
In such a situation, it is incumbent on political leaders to unpick a complex mix of problems and offer policies which unite and build resilience. This both major parties have failed to do. Labour assured us that immigration was a good thing: those who said otherwise were bigoted or misguided. After all, had not immigration been accompanied by some growth in GDP? (Maybe so, but real wages for households on average incomes stagnated). And did not immigrants contribute more in terms of social security contributions than they took out in benefits? (Maybe so, but in localities receiving large numbers, policies of austerity meant there was little if any financial support for the extra services needed.)
In the mid-20th Century, Tawney and Titmuss and T H Marshall provided an account of the development of UK social policy strongly related to national identity and solidarity. It set the fraternity and mutual interdependence of citizenship against the divisions and inequalities of class and against the turbulence and insecurity of an urban-industrial society. It was a solidarity that would welcome the stranger - but this generosity depended on that foundation of solidarity. When other writers – Rimlinger and Esping-Andersen for example - wrote the comparative history of social policy in other countries, it was similarly in terms of the solidarity and resilience of local and national communities.
We might also go back to those sociologists who described the changes that came to working class urban communities in the mid-20th Century. Wilmott and Young described the move from the close-knit relationships of Bethnal Green to the nuclear families of Debden. Richard Hoggart described the ways in which rising levels of material consumption, while welcome in themselves, left those solidaristic links to atrophy. By the end of the century, New Labour was able to bring consumerist aspiration and choice in public services to the centre of its electoral promise. The question was reduced to how well ordinary citizens would deal with this cornucopia, and how much a benign government would need to nudge them, if they were to exercise those choices wisely.
Such optimism for the new century was understandable. The economic crisis following 2008 - and the programme of austerity that followed - changed all that. Solidarity failed: all but the wealthiest suffered: Labour’s natural constituency suffered most of all. The referendum provided an opportunity for them to give vent to their sense of abandonment. It is this that we as a nation must now address.
The need is for positive action to rebuild our solidarity and creativity as a nation. Austerity has not worked and is intellectually bankrupt, having played a major part in producing the disaster we now face. Something different is needed.
The recent direction of UK social policies has been to push as many as possible into the market place, narrowing public generosity towards those who remain. The burden of austerity has fallen on the most disadvantaged, multiplying the uncertainties to which they are exposed. This is the politics of fear - and of surrender to the global market.
In contrast, the post-war social contract between State and citizen, across the western world, involved a pooling of risks and uncertainties through systems of social security. The same period saw governments confronting the economic instability of capitalist society. This has sometimes been characterised as a consensual process, the benign fruit of economic progress. Nevertheless, as T H Marshall warned: ‘in the twentieth century, citizenship and the capitalist class system have been at war’ . It was only out of that struggle that institutions of shared security emerged.
If the social changes of the 21st Century are to be managed successfully and with public consent, they need a new social contract to underpin them. We need to mobilise the energies and talents of all sections of society: and we are more likely to pull together if the distribution of rewards is less unequal. Such a contract would need to include several interrelated elements, going well beyond traditional welfare systems:
- Individual security against risks of income interruption: the heartland of traditional welfare states, albeit in the last half century on the defensive, across much of the industrialised world, in face of neo-liberal hostility to State welfare;
- Investment in everyone’s capabilities, not just in those with parental wealth: what many have referred to as the ‘social investment state’. There is good evidence that for a given financial outlay, it is investment in the lowest-skilled that can produce the greatest benefit for national productivity ;
- The rebalancing of our economies to provide ‘decent jobs’ which make use of everyone’s capabilities;
- Investment in vibrant local communities, as loci of education, learning and creativity for all: in particular for disadvantaged communities, which are often poorly connected to the community at large;
- Involvement of all in the governance of social, political and economic institutions, with active citizenship and scrutiny of public policies, and of the corporate interests which might otherwise detract from such a contract.
These are complementary elements of development. Such a contract would involve a broad range of policies of relevance to all citizens, rather than focussing just on society’s casualties. It would need to go far beyond the notion of a basic income, which in various guises has again reared its head across the political spectrum. It would limit the risks of poverty but also promote economic growth; promote individual security but also collective resilience and adaptability. It would also go far beyond the extension of choice in public services, with the citizen seen primarily as a consumer. It would involve rebuilding local and national communities, as points where these different policies can be connected up. It would leave the market where it belongs, as the servant of the community not its master.
This would also re-shape the debate on immigration. First, by investing in the skills and creativity of our own population, we reduce the need for employers to look elsewhere – for nurses, for IT specialists and others - in ways that denude poorer countries of those in whom they have invested their slender national resources. Second, by taking collective responsibility for the infrastructures of those communities to which large numbers of immigrants come, rather than ‘devolving’ this burden to the local areas in question, we reduce the risk that those communities will see immigrants as a threat.
The main political parties cluster around a narrow agenda of neo-liberal policies with low political risk. Nevertheless, the 2008 crisis produced enormous discontent and a loss of legitimacy for major social and political institutions. It is to that discontent that the rise of the SNP, the election of Jeremy Corbyn and the victory of the Leave campaign have now variously given expression. It must be collectively addressed.
Away from Austerity
The EU referendum was remarkable in bringing together the leaders of all the major political parties in defence of Remain. Concealing as it did their dramatically different visions of social and economic policy – and by extension their vision of the UK’s future within Europe – this subterfuge only underlined the artificial nature of the referendum debate. The latter instead served as a distorting mirror, in front of which the electorate struggled to make sense of the futures paraded before them.
Central to this strange tableau was the Chancellor George Osborne, whose austerity policies have been so wantonly destructive of our social fabric and who thus - no less than the Leave campaigners themselves – was the reckless co-architect of their victory. It is to the wholesale replacement of those austerity policies that any effective response to the referendum must now be geared. Just as the near-defeat of the British establishment in the Scottish referendum forced some recognition of Scotland’s grievances, so also this more dramatic defeat requires a clear re-engagement with the have-nots of the country, if these deep divisions are to be healed.
Austerity insists that reduction of the public sector deficit must be the principal economic goal, pursued mainly through cuts in public expenditure. Shrinkage of the public sector is meant not just to reduce the deficit, but also to stimulate the private sector. Underlying this view is the assumption that the market, left to itself, will automatically adjust, and produce investment, full employment and economic growth. Government only gets in the way.
There is an alternative and very different analysis of the modern economy: one which aligns with the foregoing argument for a new social contract. This recognises that Government must play a leading role, in maintaining the general buoyancy of the economy, and in using public investment to build its long-term capacity. Viewed from this standpoint, to make reduction of the deficit the top short-term priority has been unnecessary and unhelpful. If government expenditure is continually cut back, the economy is likely to stagnate: business investment will remain low, the growth in the underlying capacity of the country will be slow, and tax receipts will be flat or falling. And, as we have seen, the most vulnerable communities disproportionately bear the costs. It is like the medieval practice of blood-letting, overlooking that this only weakens the patient and reduces the likelihood – or at least the speed – of recovery.
Whether a new government dominated by Brexiteers will offer such a vigorous re-orientation of economic policy is rather doubtful. The immediate response by the public authorities to the economic uncertainties created by the referendum has been to promise new rounds of ‘quantitative easing’ by the Bank of England. Such measures lower the interest rate and, it is argued, make it easier for businesses to borrow money and invest. Keynes however showed that if those businesses lack confidence in the future level of economic activity, then no matter how cheaply money can be borrowed, they will not invest in new programmes of activity.
What the successive rounds of QE over recent years did do was to channel money not into investment in the real economy, but into equities, very much to the advantage of the already wealthy. It is perhaps not surprising therefore that the announcement of new rounds of QE in recent days has sent the FTSE soaring, after the falls immediately after the referendum. Whether the working class communities, who voted in large numbers for Brexit, will take similar delight from the announcement, is more doubtful.
The Brexit victory demonstrates deep disaffection with the European project across broad swathes of the UK – including areas which have benefitted from EU regional support. This disaffection must be addressed, if some new and positive involvement by the UK is to be possible. It will not be enough to tell those who voted to leave that they should be less xenophobic: nor that the City of London needs to be part of the single market.
How can those who believe in a shared European future now recast the European project, so that it encompasses first and foremost the sorts of communities that brought Brexit its triumph?
In the Eurozone, as in the UK, economic orthodoxy demands balanced budgets and constraints on public spending. This ignores the interconnections of the European crisis. On the one hand, German industry has enjoyed a ‘virtuous circle’ of exports, investment and productivity growth: a process which has however weakened the economies of the European periphery. Meanwhile, austerity and unemployment in that periphery have prompted the migration of skilled workers to the job markets of the north, with a transfer of human capital paid for by the home countries.
Recent decades have seen vigorous calls for public and private investment in Europe’s knowledge economy, in the social cohesion of its diverse peoples and the solidarity of its regions, whatever their different stages of social and economic development. In the Eurozone however, these calls have been trumped by austerity. The resulting stagnation is politically destabilising: and the effects spill far beyond the Eurozone proper.
It will therefore be necessary to confront the toxic austerity regime that Berlin has imposed on much of Europe and that sends a clear message of disregard to communities which are being left behind. This will mean working with reform groups in other European countries.
In 1919 the Treaty of Versailles imposed heavy reparations on Germany and restrictions on how it might re-build its industrial base. Keynes famously condemned the Treaty in The Economic Consequences of the Peace (1919) . This was in part on grounds of justice - and the need to build a peace in which the new and democratic Germany would feel included. It was also because a Germany without a thriving economy would hardly be in a position to pay the reparations that were being exacted. It was however primarily in relation to the rebuilding of the European economy as a whole that Keynes advanced his case. Europe involved highly interdependent national economies: within this, the German economy was central: restoring prosperity to Europe would be impossible if Germany remained devastated.
For modern Germany, the dominant economic power in Europe, it is no less important that these interconnections today are fully recognised; and that Germany takes a major responsibility for building a sustainable Europe for all of its communities. How Germany does this will in large measure shape Europe through much of this century: no only its economy, but its cohesion, its democratic institutions and its global influence. What this will require is much more than a single market, a single currency and a single labour market: and adding further levels of political union will also not suffice. What is also needed is a European-wide social contract, with investment in the social and economic security of communities across the Continent - and in their active citizenship, confidently in charge of their own destinies, and with none feeling left behind.
It is still possible for the UK to be part of this grand re-working of the European project. The referendum was a collective decision: and responsible citizens, individually and collectively, are able to change their minds. The dialogue between citizens and their political representatives need not and should not be confined to a single visit to the polling booth. We are collectively free to choose an alternative to Brexit.
*This article was published on the IPR Blog, run by the University of Bath Institute for Policy Research
 T H Marshall (1950), Citizenship and Social Class, Cambridge: Cambridge University Press
 S Coulombe, J-F Tremblay and S Marchand (2004), Literacy Score, Human Capital and Growth across Fourteen OECD Countries, Ottawa: Statistics Canada
 J M Keynes (1919), The Economic Consequences of the Peace, New York: Skyhorse Publishing