After an absence of more than eighteen months, I crossed the English Channel to the United Kingdom. Such has been the barrage of bad Brexit spirit from political marauders like David Frost and the stories of fuel, labor and food shortages, not to mention rising COVID cases, have been so apocalyptic that I feared I would not go through the Channel Tunnel. So, expecting to perform a Leap-like infiltration behind enemy lines, I, form of passenger locator between my teeth, showed up early at the Eurostar terminal at Gare du Nord.
The big surprise was that the trip through the two passport controls took a total of three minutes, a tribute less to my Bond-style evasion skills and more to the robots that handle British passport control. This quick passage has me wondering if the dawning winter of discontent in the UK is just a political mirage or, as some believe, an economic catastrophe in the making.
Price of a pint
My own experience, limited to central London, was that prices were considerably higher than I could remember, staff shortages were evident in all areas (cafes closed early, a restaurant reservation was canceled due to understaffing and passport control at St Pancras comes out poorly manned). Many anecdotes have been passed on to me regarding fuel shortages and general blockages of freight and goods.
On the markets, short-term bond rates (two-year gilts) rose from 0% to 0.60%, investors are anticipating very high inflation on the swap markets as well as an increase in rates this year from from the Bank of England. All in all, this doesn’t bode well for post-Brexit Britain, and I suspect that as winter approaches more and more commentators will post the headline ‘Winter of Discontent’.
There are interesting parallels between the current situation and that of the “discontent” of the late 1970s.
For example, a lorry drivers’ strike in the winter of 1978/79 matches the current Brexit-induced shortage of lorries, and in the 1970s food shortages and high inflation led to hardship (although much more pronounced than today).
Famously in early 1979, then-Prime Minister Jim Callahan returned from an international political summit in the Caribbean, joked about swimming in the warm sea there, then blamed the media for exaggerating the chaos gripping Britain. The next day he was greeted with a headline in the Sun which read “Crisis, what crisis?”. and thus its political disappearance accelerated. Fittingly, Boris Johnson has spent much of the week in Marbella, although so far he has the media on his side.
Brexit to blame
He and his colleagues will blame inflation and shortages on problems in the international supply chain, although he has so far done a very poor job of containing and channeling the economic side effects of Brexit. The fact that Northern Ireland has had far fewer supply chain and labor market issues, and has seen trade with the Republic pick up noticeably, suggests that Brexit rather than supply chain issues world cause discontent in England.
The lesson I take from the winter of discontent of the late 1970s is that it produced a political revolution – Callahan, the unions and the Labor Party were discredited, which set the stage for the arrival of the power of Margaret Thatcher. With this in mind, the question is whether, after the shock of Brexit, another political revolution is brewing.
Two avenues present themselves – much is said about Boris Johnson’s reluctance to stay long in Downing Street, and Labor has proven unable to score in the open goals that the post-Brexit environment has provided. This paves the way for new leaders on the left and center – though I struggle to identify many candidates.
Having written extensively on the rigidity of the two-party system in the UK and the failure of political entrepreneurship (a few recent initiatives to launch new political parties have failed). If there are to be any revolutions, I suspect that the middle ground of the Conservative party is one place to watch, the possibility that moderate Northern Ireland parties like the Alliance and some independent candidates will gain popularity, and of course Scottish independence reshaped Britain’s dynamic and powerful politics.
While it’s tempting to conclude that Britain is a basket case of Brexit, my long-held theory is that politically Britain is a melting pot for many of the forces that have driven globalization and are now undermining it. In this framework, Brexit was only the first major break in the beginning of the end of globalisation, and by extension the rule is that what happens in Britain will later reverberate in other countries.
The risk then is that we have a global “winter of discontent”. There are some signs of this – coal prices have quadrupled in China, cargo ships are stuck around the US coast where, among other effects, meat prices are rising, and Congresswoman Alexandria Ocasio Cortez tweeted in favor of “Striketober”. The only comforting observation I have found is that The Economist’s front page talks about an energy crisis, which, by the rule of thumb of my “Economist’s front page”, signals the end of crisis.
The general risk, in bringing all these threads together, is that rising food, labor and energy prices prove to be more durable than transitory. Central bankers have widely interpreted the price increases as “transient”, but a research paper by a prominent figure in the mystery world of central banking (Jeremy Rudd) suggests that central banks are complacent about inflation. If interest rates are to rise faster than households wish, a rise in the price of a pint of beer will be the least of our worries.