Free Ports – a Modern Pirate Tortuga
THE UK (and Scotland with it) has entered a radically new political conjuncture. The December General Election ended a two-year parliamentary stasis and handed the populist, libertarian wing of the Tories a hefty majority. Meanwhile, Brexit is now an accomplished fact, cooling (but not entirely eliminating) the sharp political confrontation between different parts of the British ruling class over economic strategy. My worry is that the SNP leadership has not grasped it is no longer business as usual.
To sum up the new Boris administration: political power has passed into the hands of elements based on new, high-risk domestic capital (e.g. Jim Ratcliffe, Tim Martin and James Dyson) and non-Establishment financial pirates who made their original pile from Thatcher’s deregulation and privatisation policies (basically the hedge fund mafia). These groups are responding to the post-2008 secular downturn in the global economy which has seen falling rates of profit, rock bottom interest rates, lower commodity prices, and a precarious asset bubble in shares and bonds (thanks only to central banks printing money).
In a desperate hunt for scarce returns, Britain’s new class of industrial buccaneers have ditched the EU – which is essentially a protectionist wall behind which German and French (what’s left of it) industrial capital is hiding from hegemonic US advanced technology and China’s low cost export base. The Del Boy Brexiteers want to forge their own trade deals, slash costs through further deregulation and (if possible) turn the UK into a giant Singapore export hub anchored off continental Europe. This is not an irrational strategy – especially if the Chinese decide they can use the UK as a giant freeport to smash their way into European markets. Which might explain Boris Johnson’s odd reluctance to kowtow to Trump over Huawei.
Meantime, what’s left of the UK’s heavy manufacturing base has been bought out and incorporated into European supply chains by German, Dutch, Japanese and Indian capital focused on selling into EU markets. These are the elements who have resisted Brexit. They are now toast. True, we might see UK Japanese and German car manufacturers relocate production to the continent (a.k.a. a hard Brexit). But Europe is miles behind America and China in the race to produce electric and self-driving vehicles, so this sector is doomed to implode anyway. Which is why Boris famously quipped “fuck business”.
What about traditional City banking – which has dominated the UK economy? Back in the 1970s, the City actually opposed joining the Common Market because it was frightened of heavy European financial regulation. Then the City came to love the EU as it meant free movement of capital, which allowed the City to pulverise stuffy, inefficient German and French banking and insurance. This in turn made the City reticent to back Brexit. However, the past two years has seen City retail and investment banks (which includes offshore US institutions) begin to warm to quitting the EU. Partly, they sniff a new wave of profitable deregulation, thanks to Chancellor Javid (an ex-banker himself). And party because European finance capital is so weak, that continental industrial capital needs the City of London.
All of which suggests that the political left and the Scottish independence movement should not get too gleeful at the prospect of an imminent Tory economic meltdown. In particular, the SNP Government needs to face up to the fact that the new Tory ruling bloc wants to transform the entire UK economy through deregulation and state-funded reinvestment (which domestic capital and finance need to shore up their profits). This thrust will start with the introduction of Free Ports.
BEWARE STRANGERS OFFERING FREE PORTS
Free Ports are designated zones which, although inside the geographic boundary of a state, are considered legally outside for customs and other purposes. This means goods and raw materials can enter and exit the port without incurring usual red tape or tariffs. It also means that companies creating manufacturing plants inside the zone can receive preferential tax breaks.
In essence, Free Ports are pirate economic enclaves that could turn the UK into precisely the offshore version of Singapore our new Del Boy capitalist are so keen to create. Welcome to our own modern version of Tortuga, the 17th century pirate port in Hispaniola.
To date, EU law has restricted the use of Free Ports under state aid rules. Which is one reason why our libertarian Del Boys are so keen on Brexit. They include Tory MP Rishi Sunak, who wrote a major study on Free Ports in 2016, published by the Centre for Policy Studies, a right-wing think tank.
At that point, Sunak was a new Tory backbencher. Before that he was an investment banker at Goldman Sachs before joining a hedge fund. Then he and colleges set up their own hedge fund with a cool $700m in capital. Yes, Mr Sunak is your archetypal Del Boy, libertarian New Tory. He is also now also the Chief Secretary to the Treasury and busy helping fellow banker Sajid Javid prepare the March Budget. Any bets this includes and announcement about Free Ports?
Mr Sunak is particularly enamoured of Chinese Free Ports – so-called Special Economic Zones. These have lower tax, less regulation and “easier” planning (i.e. they pollute) than the domestic Chinese economy. According to Sunak: “Local property taxes, corporate income taxes and employment taxes were all lowered, as well as customs duties, in order to attract Foreign Direct Investment… the Zones account for 20% of China’s GDP, 30 million jobs and around half of all FDI”.
(By the way, most of these jobs were filled by herding millions of young female peasants off the land in central China and decanting them into dreary dormitories in the coastal Free Ports. Meanwhile, uncompetitive state-owned firms were downsized, casting millions of existing (and bolshie) industrial workers into unemployment. You have been warmed.)
Sunak is particularly keen to use UK Free Ports to slash taxes. He suggests “lower VAT rates on goods brought in through the Zone, reduced rates of corporation tax for companies located within it, tax credits for local R&D activity, and lower rates of employment tax for new employment created”. He thinks this strategy could create more 86,000 jobs in the UK economy, especially in the deprived English northern ports.
WHAT’S WRONG WITH FREE PORTS?
All the historical evidence shows that Free Ports – there are many models – do not create jobs or investment in any net sense. Rather, by slashing taxes, labour protection and environmental standards, they merely succeed in moving jobs and investment from existing areas. Thus, the Chinese Special Economic Zones took jobs from America. In like manner, UK Free Ports are designed to take jobs from the EU. And also, from existing manufacturing areas in the UK itself. At the same time, by pitting coastal ports against urban manufacturing zones, the UK work force can be disciplined, and local authorities forced into another round of rate cuts, in an attempt to keep competitive.
Free Ports are the thin edge of a very long wedge of deregulation. It is imperative that Scottish local authorities do not get persuaded to compete for Free Port status if this is dangled in front of them – especially on Clydeside, Leith, Dundee or Aberdeen. Assuming, of course, that the Scotland Office does not simply parachute them in without consulting the Scottish Government.