David McWilliams: Brexit and the economics of love/hate

It’s Christmas, so let’s talk about the economics of love, human connection and trust. These are not concepts you associate with my game, yet they are central to the workings of any modern economy.

Although you might not appreciate them, you miss them when they are gone. I fear they are missing in large swathes of the UK.

The recrimination following the UK election and the divisiveness of the debate, all point to a bigger loss than Brexit or EU membership. Although Boris Johnson is talking the language of reconciliation – and who knows, he might perform a social miracle (he has been underestimated at every stage of this saga) – the omens are not good. The glue that holds UK society together is melting.

The economy is constantly evolving and at its core is the co-operative human

Anger is the energy of the impotent. It is how you feel when you are powerless, not powerful. The defining characteristic of this election has been anger on both the Right and the Left. Indeed, one of the most troublesome aspects of the Right/Left dichotomy is failure to capture what makes the economy tick.

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Philosophically, both ideologies are based on a view of humanity which is profoundly inaccurate. Given that economics is a social science governed by the behaviour of the most social of all animals, any ideology that fails to grasp what drives humans is bound to be incomplete.

Too simple ideas

Philosophically, the Left is broadly based on the notion that humans are deeply altruistic. In this worldview, human vices such as avarice and greed are the products of a badly designed system. Therefore, if we redesign the system, humans will be liberated to be the altruistic, sharing, caring animals that we are naturally destined to be. This view is the catechism of philosophers as varied as Jesus Christ, Lenin and Rousseau.

In contrast, the traditional Right views humans as inherently self-interested, and says that if we leave people to pursue their own agendas, the market will sort things out. As Adam Smith dictated, an “invisible hand” will direct the society of individuals to achieve the best outcome for everyone.

Anyone who has observed the reality of humanity will appreciate that these two big ideas are too simple to have much practical validity. Humans are neither uniquely altruistic nor purely self-interested. We are, in the main, social and co-operative creatures.

It is essential that our politics make our society more fertile for social capital. Good community-focused local politics can help to achieve this

The genius of humanity is co-operation. We learn from each other, we tinker together, making small adjustments as we go. In truth, economics is much more akin to evolutionary theory, than it is to a quantifiable science.

We drop things that don’t work, we pick things up, we modify and copy. The economy is constantly evolving and at its core is the co-operative human, explained by a whole subsets of economics called evolutionary and network economics.

Psychologists will also tell us that humans don’t just co-operate, we reciprocate. The adage “you scratch my back and I’ll scratch yours” is a more accurate description of how humans actually behave collectively than any hi-falutin’ economic theory.

So we co-operate but that co-operation is conditional on reciprocity. It is reciprocity that dictates the fairness. We will give, if we think we will get back at some stage.

‘Social capital’

The core of reciprocity is trust. I trust you to scratch my back at some time in the future, so I’ll scratch your back now. While trust can be enforced by laws, it is easier to trust people without resorting to a legal referee.

As co-operation amplifies human capacity, the more trust there is between people, the more the economy expands. This is why there is a strong positive correlation between societies with a high level of trust and a high level of income.

At the core of trust are strong, fair institutions and something essential called “social capital”. These are the networks that bind us together and bring us into contact with our community. These ties can be a book club, a GAA club or a WhatsApp group. They can also be explicitly political like a political party, a residents’ committee or an environmental protection group.

Humans, with armed with personal dignity, are at the centre of everything

The key aspect of social capital is that it strengthens the community, giving it a singularity of purpose and ultimately a social cohesion. Volunteering is a wonderful example of social capital. Countries with high levels of social capital, unsurprisingly, have high levels of trust, higher levels of income than those that don’t and many more ways of co-operating and showing reciprocity.

In fact, because reciprocity strengthens the social network, these co-operative factors come together to amplify each other, creating a self-reinforcing positive dynamic. This is how the economy grows, through the proto-evolutionary mechanism of human collaboration.

Therefore, it is essential that our politics make our society more fertile for social capital. Good community-focused local politics can help to achieve this.

However, if a political creed explicitly fosters division, encourages “us and them” attitudes and undermines trust by allowing inequalities to widen, it undermines reciprocity and alienates people.

Brexit Tories

Now think about the large swathes of northern England that voted Conservative. I like to call these people the Brexit Tories. Brexit Tories are to the UK what Reagan Democrats were to the USA. Brexit Tories are Labour voters who have shifted to voting Tory because of Brexit, following in the foot-steps of Reagan Democrats, traditional Democrats who jumped ship to Reagan after the 1982 recession.

They are a population decimated by the decline of British industry in the 1970s and 1980s, exacerbated by Margaret Thatcher’s policies which were explicitly based on a misunderstanding of human nature. In the 1990s they suffered another crippling recession and they also bore the brunt of post-2008 austerity.

At every turn, social capital in England was chipped away, trust undermined and, ultimately, reciprocity enfeebled by widening inequality. UK incomes have not risen for 10 years, productivity is low and as a result, so too are wages. You have only to walk into a supermarket in the UK to see how cheap things are compared with here. Things are cheap because the people are poor.

There has also been a drop in volunteering in the UK and this is more pronounced in poorer areas. A recent study at the University of Manchester showed a drop in volunteering across the UK since the 2008 crisis. Once you break the ties that bind communities together, trust falls and with it, so too does co-operation, rupturing the social network.

People become atomised and poverty amplifies this sense of isolation. Quickly hope turns to anger because reciprocity and the appearance of having a chance smash into the reality of income, and regional and social inequality. Anger diminishes understanding, affection, connection, co-operation and ultimately, love.

Rage becomes normalised, and the economy, which is sustained by collaboration seizes up. No one’s back is scratched and everyone is worse off.

The lesson for Ireland from England at this time of year, is that an economy is not just for Christmas. It’s a 365-day, 24-7 concept driven not by self-interest or even unique gestures of saintly kindness, but by collaboration and co-operation. It is strengthened by civil ties and social capital.

Reciprocity, love and fairness make co-operation conditional. Critically, the social network works with adaptive evolutionary cunning, and humans, armed with personal dignity, are at the centre of everything.

We mess with this at our peril.