Poorer Britain means that Brexit is ‘far from settled’

Financial Times (FT) commentator Janan Ganesh has said that it is by no means certain that the British Labour Party will win the next general election.

Speaking last night (8 November) at a Mason Hayes and Curran LLP financial insights event at Dublin’s Shelbourne Hotel, Ganesh said that accurate prediction is always difficult.

Several early-2018 received opinions have now come undone, he added.

He pointed to common 2018 positions such as:

• Land wars in Europe were a thing of the past,
• Low inflation and ‘Japanification’ were the main dangers to Western economies,
• The public was incurably anti-authoritarian and would never accept incursions into personal liberty on grounds of public health, for example,
• The West was fatally divided with no chance of a robust and cohesive response to external threats.

However, since February this year, and Putin’s invasion of Ukraine, the West is now bigger in extent, since Sweden and other countries have aspirations to join NATO, and stronger in depth, because of added defence spending.

All four of the received 2018 positions were wrong in the same way, in that they extrapolated from the present to wrongly predict the future, and inferred too much from what was already known, the Financial Times writer said.

Another sure way of getting the future wrong is to be wildly fantastical and over-optimistic, which is often seen in Silicon Valley, he added.

Over-confident bets

Ganesh fears a similar round of incorrect predictions and over-confident bets based on current evidence, is setting in. 

Rishi Sunak is the first British prime minister since 2016 technically capable of doing the job properly, he noted.

“The surest way of a 12-year-old government getting re-elected is not through grand vision, but by a demonstration of basic competence,” he said.

A coming recession will not mean the same for a Tory Government, since Labour is perceived as having a redistributor role in power, and this cannot happen if money is short.

Ganesh pointed to previous Tory electoral victories at times of recession, such as in the early 1980s, early 1990s, and after the 2008 financial crash.

The political consequences of recession are asymmetrical for Tories versus Labour, he noted.

Mistaken commentary

This makes much current commentary about British politics mistaken, he said.

Economic realities, and the fact that Britain is getting poorer, mean that Brexit is far from a settled question, he commented, though it may take another political generation before the topic is reopened properly.

Demographic churn means that younger, more generally pro-EU voters will become electorally stronger, he said.

The strengthening economies of Eastern Europe means that free movement of labour, one of the causes of Brexit, will cease to be a political matter, he suggested.

Free movement as an obstacle to re-joining the Single Market will diminish in importance, he said.

The fantasy of endless trade deals is also fading, he said, now that trade with China is now less viable.

Ganesh believes that by 2030, Britain will be substantially back in the Single Market.

“Geography has not been abolished,” he quipped.

The economic gap between the Baltics and Britain is narrowing at a rate that is inspirational if you are Polish, and pretty depressing if you’re from Britain, he said.

US is not fatally divided

The notion that the US is fatally divided should also be questioned, Ganesh said.

America became more divided, partly because of the 1990s deregulation of broadcasting and the rise of social media.

However, the fall of communism in 1989 meant it lost its unifying rival in the Soviet Union, he commented.

“The evidence that American partisanship really took off after 1989 is, to me, persuasive,” he said, because US energy went into domestic politics rather than to an external threat.

However, the rising threat from China may restore some glue, and force Americans to look outward for the first time in 30 years, he added.

Ganesh said that politically extreme views remain a minority, but that indifferentism and complacent voting by those in the middle is a more dangerous factor.

This mentality exists because of the long passage of time since electoral decisions have had catastrophic consequences, such as with the rise of the Nazis in 1930s Germany, he said.

“It’s a good thing that we have had a human lifetime of relatively benign outcomes, but it does eventually make otherwise sensible people take risks that they would not take in more volatile times,” he commented.

Stability has a destabilising effect, he added, and what has changed is rising complacency.

Dictator mentality

Trump as US president had a real insight into the dictator mentality, because he had certain similar qualities, such as volatility and aggression, Ganesh observed.

Trump was also the only US president this century who did not see a Russian incursion into neighbouring territories.

“Trump’s volatile aggression, refusal to be messed with, and hatred of losing face on the international stage, makes him perversely quite good in this type of situation,” Ganesh said.

The best case for conservatism is that it is the defence of liberalism by people who don’t trust liberals to do it, he commented.

On China, Ganesh said that while it had opened up to global trade for 30 years, the state remained fundamentally wedded to communist doctrine.

This is why it is now turning away from open markets and imposing draconian zero-COVID politics on its citizens.

Ganesh said that while “frothy” social media is going through a crisis, and losing value,  the secular trend remains upward, because technology is such a young industry in grand historical terms.

Global internet 

The real threat is to the concept of a global internet, as certain countries such as China and India seek to control the free exchange of information, he added.

Ganesh also noted that large cities have returned to their pre-virus vitality, and that this is a profound pleasure.

He also commented that the most stimulating and evolving area of law is the legal regulation of building and facilities in space, especially given that China is a decade ahead of the US in this field.

The public may be barely conscious of the fact that it is living through the second Cold War, he concluded.

Last night’s event was moderated by William Carmody (MHC LLP partner and head of financial services) and Sarah Cloonan (MHC LLP financial services partner).