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Forbidden fruit
The neglected political economy of Lexit
The EU was an engine of neoliberalism. Our departure opens up new
political-economic horizons based on precisely those policy instruments and
strategies the EU disallows, with ownership and control, democracy, and
participation central to post-Brexit Left economic strategies.

Joe Guinan and Thomas M. Hanna

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T
he Brexit vote to leave the European Union has many parents, but Lexit
the argument for exiting the EU from the Left remains an orphan. Fully a
third of Labour voters backed Leave, but they did so without any significant
leadership from the bulk of the organised Left, especially the Labour Party.3 Once the
most Eurosceptic of the European socialist parties, Labour under Kinnock, Smith, Blair,
Brown, and Miliband became so incorporated into the ideology of Europeanism the
secular faith that it is an ordained agent of human progress as to preclude any clear-
eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing
deep economic integration.4 This has had profound implications for Left thinking on
economic policy and strategy. The self-same political journey that carried the British
Left into its technocratic embrace of the EU has also resulted in the abandonment of
any form of distinctive economics separate from the orthodoxies of market liberalism.

Ceding Brexit to the Right was very nearly the


most serious strategic mistake by the British Left
since the 1970s

Its been astounding to witness the extent to which many Left-wingers, in meltdown
over Brexit, have resorted to parroting liberal economics. Thus we hear that factor
mobility isnt about labour arbitrage, that public services arent under pressure, that we
must prioritise foreign direct investment and trade. Its little wonder the Left ended
up so detached from its base. Such claims simply do not match the lived experience
of ordinary people in regions of the country devastated by deindustrialisation and
disinvestment. Faced with concerns about wage stagnation and bargaining power, the
response cannot be to dismiss them out of hand by pointing to standard economic
models. Nor should those who find themselves on the sharp end of labour markets be
answered with finger-wagging accusations of racism, as if the manner in which capitalism
pits workers against each other hasnt long been understood. Instead, we ought to be
offering solutions including a willingness to entertain restrictions on capital mobility

3 Moore P (2016) How Britain Voted, YouGov. https://yougov.co.uk/news/2016/06/27/


how-britain-voted/
4 Gillingham J (2016) The EU: An Obituary, Verso

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and trade. But, in adopting single market ideology, the Remain Left has eschewed such
forays into the political economy. Instead, we get tired neoclassical orthodoxy disguised
as liberal identity politics.5
Ceding Brexit to the Right was very nearly the most serious strategic mistake by the
British Left since the 1970s. That the Leave vote immediately unleashed a carnival of
reaction was, at least in part, the culmination of a gigantic self-fulfilling prophecy. The
field was abandoned. Jeremy Corbyn himself was howled down for expressing anything
less than unconditional devotion to Brussels. The votes of left-of-centre British voters
proved decisive in determining the outcome of a referendum that was otherwise framed,
shaped, and presented almost exclusively by the political right on its own terms. A proper
Left discussion of the issues has been, if not entirely absent, then decidedly marginal
to the national debate; part of a more general malaise when it comes to developing
alternatives something that has begun to be corrected only recently, under Corbyn and
John McDonnell.

Incredibly, what seemed an unbeatable electoral bloc


around Theresa May has been deftly prized apart

Only the political savvy of the leadership has enabled Labour to recover from its disastrous
positioning post-referendum, whereby British socialism had become identified by a large
section of its base as defender of the same destructive neoliberalism behind the crises in
their communities. Incredibly, what seemed an unbeatable electoral bloc around Theresa
May has been deftly prized apart, largely through direct engagement with the underlying
economic issues in the course of Labours extraordinary general election campaign. To
consolidate the political project they have initiated, Corbyn and McDonnell must now
follow through on the construction of a radically different political economy. In so
doing, the place to look for inspiration is precisely the range of instruments and policy
options that are discouraged or outright forbidden by the EU.

THE LEFTS FAILED GAMBLE


The fact that right-wing arguments for Leave predominated during the referendum
says far more about todays British Left than it does about the European Union. There
has been a great deal of myth-making concerning the latter, propagated by a massive
establishmentarian intellectual enterprise funded directly or indirectly by the EU
itself.6 Widely credited with bringing about both peace and prosperity, the EUs record
can sustain neither claim.
The origins of European integration are deeply intertwined with colonialism and the
Cold War. The Treaty of Rome was partly an effort to reflate European imperium after

5 Guinan J and Hanna T (2017) Polanyi against the whirlwind, Renewal 25:1: pp5-12
6 Gillingham J (2016) The EU: An Obituary, Verso

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the humiliation of Suez.7 Jean Monnets founding vision effectively involved nothing
less than integrating Europe around the nucleus of what would have become a military-
industrial complex Euratom, the European Defence Community, and the Multilateral
Force topped off by a dangerously unaccountable executive with ill-defined powers.8
Moreover, as Susan Watkins has pointed out, the idea that European integration
delivered peace might raise eyebrows among, say, Algerians or Irish republicans, given the
continuing record of neo-colonial violence, while EU foreign policy and the European
armaments trade have played their part in creating a widening arc of devastation that
now surrounds it, from Ukraine and the Balkans to Iraq, Libya, Syria, and Yemen.9
On the economy, setting aside Europes twenty-year postwar reconstruction boom, the
record is poor. Robert Schumans 1951 European Coal and Steel Community was already
presiding over crises in both industries by the mid-1950s. Decisive pressure toward
market integration came from a powerful neo-liberal culture aimed at the removal of
national barriers to trade.10 Prospects for Keynesian reflationary policies, or even for
pan-European economic planning never great soon gave way to more Hayekian
conceptions. Hayeks original insight, in The Economic Conditions of Interstate Federalism,
was that free movement of capital, goods, and labour a single market among a
federation of nations would severely and necessarily restrict the economic policy space,
whether fiscal, monetary, or regulatory, available to individual members.11 Federation,
in Wolfgang Streecks formulation, inevitably entails liberalization.12

From its inception, the EU has been a top-down project


driven by political and administrative elites

Britains entry into the common market took place, as Tom Nairn noted, in a period
of general political reaction, after the fires of the 1960s had burned themselves out
and conservatism was reasserting its dominance everywhere. Long-running debates on
the British Left over the European Economic Community (EEC) suddenly had to be
resolved in less than six months, between May and October 1971.13 Radical alternatives
to entry were sidelined. In the first year of EEC membership, Britains economic
problems intensified, with the opening up of a 2 billion manufacturing trade deficit,
undermining the governments strategy of export-led growth.14 Despite this, Labours
1975 referendum resulted in a decisive defeat for the anti-market Left urging withdrawal.

7 Anderson P (2009) The New Old World, Verso; Hansen P and Jonsson S (2014) Eurafrica: The Untold History of
European Integration and Colonialism, Bloomsbury
8 Gillingham J (2016) The EU: An Obituary, Verso
9 Watkins S (2016) Casting off ?, New Left Review, II/100: pp5-31
10 Sassoon, D (1996) One Hundred Years of Socialism: The West European Left in the Twentieth Century, New Press
11 Hayek, F (1939) The Economic Conditions of Interstate Federalism, New Commonwealth Quarterly, V/2:
pp131-49.
12 Streeck, W (2014) Buying Time: The Delayed Crisis of Democratic Capitalism, Verso
13 Nairn, T (1973) The Left Against Europe?, Penguin
14 Newman, M (1983) Socialism and European Unity: The Dilemma of the Left in Britain and France, Junction Books

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For pro-EEC British socialists (as opposed to social democrats and liberals), the
rationale for membership rested principally on the growing transnational character of
capital, and the search for ways to counter this with international solidarity, on the one
hand, and the capacity for supranational regulation, on the other. This was always a
highly speculative exercise. We know, indeed, that the common market is intended to
strengthen the sinews and the world-position of European capitalism and its various
ruling classes, Nairn wrote at the time. What we do not know is whether, or in
what ways, it may also strengthen the position and enlarge the real possibilities of the
European working classes.15

The main thrust of European economic policy has been


to extend and deepen the market through liberalisation,
privatisation, and flexiblisation

We know now; hardly at all. From its inception, the EU has been a top-down project
driven by political and administrative elites a political system,in the judgment of the
late Peter Mair, constructed by national political leaders as a protected sphere in which
policy-making can evade the constraints imposed by representative democracy.16 To
complain about the EUs democratic deficit is to have fundamentally misunderstood
its purpose. The main thrust of European economic policy has been to extend and
deepen the market through liberalisation, privatisation, and flexiblisation, subordinating
employment and social protection to goals of low inflation, debt reduction, and
increased competitiveness.17 European socialists, whose aim had been to acquire new
supranational options for the regulation of capital, ended up surrendering the tools they
already possessed at home. The national road to socialism, or even to social democracy,
was closed. In the name of the international requirements of modern capitalism,
Donald Sassoon observed, governments were required to accept the abandonment of
internal that is national regulation.18
The direction of travel has been singular and unrelenting. Virtually every political
economy suffered to some degree from end of history delusions, but only the EU
constitutionalised them in its treaties. The results, across a range of socioeconomic
indicators, are plain to see. Income inequality, to take one example, has increased in
Britain since EEC entry in 1973 as it has in Germany, France, Italy, the Netherlands,
and Luxembourg. The same pattern holds for Austria, Spain, Denmark, Finland, and
Sweden. Workers rights a supposed EU strength are steadily being eroded, as can be
seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and
Laval cases, among others. In both instances, workers attempting to strike in protest at
plans to replace workers from one EU country with lower-wage workers from another,

15 Nairn, T (1973) The Left Against Europe?, Penguin


16 Mair P (2013) Ruling the Void: The Hollowing of Western Democracy, Verso
17 Guinan J and Hanna T (2016) Is another Europe possible?, openDemocracy. www.opendemocracy.net/uk/
thomas-m-hanna-joe-guinan/is-another-europe-possible
18 Sassoon, D (1996) One Hundred Years of Socialism: The West European Left in the Twentieth Century, New Press

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were told their right to strike could not infringe upon the four freedoms established
by the treaties free movement of capital, labour, goods, and services. Meanwhile, any
attempt to create a different kind of economy from inside the EU has been forestalled
by European law. This has happened across a range of economic areas: trade, financial
regulation, state aid, government purchasing, public service delivery many of the
things the Left might conceivably wish to do would likely fall foul of competition policy
or single market regulation. Let us stop romanticising European economic integration,
seeing it as a democratic, social project, Martin Hpner of the Max Planck Institute for
Social Research in Cologne has argued. It is neither democratic nor social.19

A NEW POLITICAL ECONOMY


Given that the UK will soon be escaping the constitutionalised neoliberalism of the
EU, what opportunities might this afford in the future? Adam Tooze has offered the
following suggestive schema of the Brexit divide, sorting the politics of the Remain
and Leave camps by their attitudes (pro- or anti-) toward London-based finance capital.

Pro-City Anti-City
Official
Remain Corbyn
Remain
Disaster
Leave industrial policy1
capitalism

As Tooze admits, the entire mapping of the forcefield of the Brexit debate offered
by Remain was designed to exclude any reasoned debate about the bottom right cell
in large part because the liberal Left had, either through calculation or emotional or
political conviction, arrived at the position that no attractive option along those lines
existed outside the framework of the EU. Having ruled Lexit impossible beforehand,
Tooze argues that it is now out of bounds afterwards, too.
The problem with this question-begging exercise is that, for the Left, the bottom right
quadrant is where the actual solutions lie. It is here that we find state aid, industrial strategy,
targeted investment, managed trade and capital flows, procurement linkages, heterodox
monetary policy, public ownership, democratic planning the whole panoply of
instruments and measures that might really deliver structural changes to our economy
capable of carrying us beyond neoliberal crisis and austerity. These options are only
impossible for as long as sufficient numbers of people on the Left keep dismissing or
ignoring them.

While not banned outright by European Union


law, public ownership is severely discouraged and
disadvantaged by it

19 Hpner M (2008) Social Europe? The European Project After Viking And Laval, Hans-Bckler-Stiftung.
www.boeckler.de/36195_36457.htm

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Three policy directions immediately stand out as promising terrain for exploration:
public ownership, industrial strategy, and procurement. In each case, EU regulation previously
stood in the way of promising Left strategies. And in each case, the political and
economic returns from bold departures from neoliberal orthodoxy after Brexit could
be substantial indeed.
While not banned outright by European Union law, public ownership is severely
discouraged and disadvantaged by it. The EEC originally tolerated plural ownership
forms. However, ECJ interpretation of Article 106 of the Treaty on the Functioning
of the European Union (TFEU) has steadily eroded this toleration. The ECJ, Danny
Nicol writes, appears to have constructed a one-way street in favour of private-sector
provision: nationalised services are prima facie suspect and must be analysed for their
necessity. This is patently not a neutral stance but a pro-private enterprise one.20
Sure enough, the EU has been a significant driver of both privatisation and liberalisation,
and this functions as something like a ratchet. For example, it is much easier under EU
law for a member state to pursue the liberalisation of economic sectors than to secure
nationalisation (or renationalisation). Article 59 (TFEU) specifically allows the European
Council and European Parliament to liberalise services. Since the 80s, there has been a
concerted effort to encroach on public ownership via single market programmes in the
energy, transport, postal services, telecommunications, education, and health sectors.21


...its time to explore the role of an expanded and
fundamentally reimagined UK public sector

Britain has long been an extreme outlier on privatisation. All told, the UK was
responsible for 40 per cent of the total assets privatised across the OECD between 1980
and 1996.22 Since then, the performance record of the privatised industries has ranged
from underwhelming, to calamitous, to downright larcenous. At the same time, despite
carefully propagated myths to the contrary, on the basis of the evidence available,
public ownership is decidedly not inherentlyless efficient.23 Nevertheless, new models
are certainly required. Increasing inequality, poverty, environmental degradation and the
threat of catastrophic climate change, together with a general sense of an impoverished
public sphere and loss of local economic control, are leading to growing calls for
renewed public ownership. Many activists and thinkers engaged in its recovery and
rehabilitation have already decided against a simple return to the top-down centralised
public corporation of the postwar period. Soon to be free of EU constraints, its time
to explore the role of an expanded and fundamentally reimagined UK public sector.24

20 Nicol D (2010) The Constitutional Protection of Capitalism, Hart


21 ibid
22 HM Treasury (2002) Implementing Privatisation: The UK Experience, HM Treasury
23 Guinan J and Hanna T (2015) Dont Believe the Corbyn Bashers The Economic Case against Public
Ownership is Mostly Fantasy, openDemocracy. https://www.opendemocracy.net/ourkingdom/joe-guinan-
thomas-m-hanna/dont-believe-corbyn-bashers-economic-case-against-public-owners
24 See Hanna T (forthcoming) The Return of Public Ownership: Pathways to the Next System, book manuscript

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Labours manifesto promise to take the railways back into public hands is a great start
and would be virtually impossible were Britain to remain in the EU. The 2012 update
to the First Railway Directive, one of the pretexts for the privatisation of British Rail in
the first place, essentially requires that multiple operators be allowed access to the same
track competitively, stating that [g]reater integration of the Union transport sector is
an essential element of the completion of the internal market... The efficiency of the
railway system should be improved, in order to integrate it into a competitive market.25
State reservations of exclusivity for public monopolies on public interest grounds are
held to a very exacting standard indeed.
Next up, industrial strategy. Britains industrial production has been virtually flat since
the late 1990s, and has still not recovered fully from the 2008 financial crisis, causing a
yawning trade deficit in industrial goods.26 Any serious industrial strategy or economic
planning process to address the structural weaknesses of the UK manufacturing sector
will rely on state aid in one form or another the nurturing of a next generation of
companies through grants, interest and tax relief, guarantees, government holdings, and
the provision of goods and services on a preferential basis. Such measures run right
up against EU law.27 Since 1957, Nicol observes, the Treaty has sought to control
subsidies from member states to industry.28
Article 107 TFEU allows for state aid only if it is compatible with the internal market
and does not distort competition, laying out the specific circumstances in which it could
be lawful. Whether or not state aid meets any of these criteria is at the sole discretion
of the European Commission and courts in member states are obligated to respect
and enforce the Commissions decisions. To make these decisions, the Commission has
adopted an approach that considers, among other things, the existence of market failure,
the effectiveness of other options, and the impact on the market and competition. In
effect, state aid to stricken industries is permitted only in exceptional circumstances.29

It is high time the Left returned to the


possibilities inherent in a proactive industrial
strategy, both locally and nationally

For many parts of the UK, the challenges of industrial decline remain starkly present.
The grotesque power that private corporations continue to wield over workers and
communities through their locational decisions was on display in recent debacles at

25 Hoey K (2017) Heres the Real Reason We Cant Renationalise the Railways, New Statesman.
http://www.newstatesman.com/politics/2015/08/renationalise-railways-what-no-one-will-tell-you-we-cant-
while-were-eu
26 Toporowski J (2017) Brexit and the Discreet Charm of Haute Finance, in Bailey, D and Budd, L, eds., The
Political Economy of Brexit, Agenda
27 European Commission (2016) State aid control: overview, webpage. http://ec.europa.eu/competition/
state_aid/overview/index_en.html
28 Nicol D (2010) The Constitutional Protection of Capitalism, Hart
29 ibid

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Grangemouth in Scotland, Redcar on Teesside, and Port Talbot in Wales. Entire


communities are thrown on the scrap heap, with all that implies in terms of associated
capital and carbon costs and wasted lives.It is high time the Left returned to the
possibilities inherent in a proactive industrial strategy, both locally and nationally.
A true community-sustaining industrial strategy would consist, in the broadest
sense, of the deliberate direction of capital to sectors, localities, and regions, so as
to balance out market trends and prevent communities from falling into decay, while
also ensuring the investment in research and development necessary to maintain a
highly productive economy. The task of industrial strategy is not to prevent market
destruction and creation, but to act as a balancing agent, such that a downturn or
technological upheaval in one sector or firm does not jeopardise the stability and
viability of entire communities or industries. Policy, in this vision, would function to
re-deploy infrastructure, production facilities, and workers Left unemployed because
of a shutdown or increase in automation.
In some cases, this might mean assistance in allowing workers or localities to buy up
facilities and keep them running under worker or community ownership. In other,
more difficult cases it might involve re-training workers for new skills and re-fitting
facilities for work in a different industry. In either case, affected localities would be
able to draw on public resources whose aim is to help secure the long-term stability
of the community and to sustain national production in key sectors and industries. A
regional approach might help launch new enterprises that would eventually be spun off
as worker or local community-owned firms, supporting the development of strong and
vibrant network economies as in Italys prosperous Emilia Romagna region through
technical, marketing, coordination, and other assistance.30 All of this will be possible
post-Brexit, under a Corbyn Labour government.

Unleashed from EU constraints, there are


major opportunities for targeting large-scale
public procurement to rebuild and transform
communities, cities, and regions

Lastly, there is procurement. The economic footprint of local government and


associated spending by institutions stewarding public funds is sufficiently large that,
used more intentionally, it could stabilise local economies. This in turn would reduce
corporate leverage and restore the capacity for democratic control. Under European law,
however, explicitly linking public procurement to specific local entities or social needs is
difficult. The ECJ has ruled that, even if there is no specific EU legislation concerning
procurement activity, it must comply with the fundamental rules of the Treaty, in
particular the principle of non-discrimination on grounds of nationality.31 In essence,

30 Zamagni D (2016) Learning from Emilia Romagnas Cooperative Economy, Next System Project.
http://thenextsystem.org/learning-from-emilia-romagna/
31 Nicol, The Constitutional Protection of Capitalism, p115.

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this means that all procurement contracts must be open to all bidders across the EU, and
public authorities must advertise contracts widely to bidders in other EU countries. In
2004, the European Parliament and Council issued two directives establishing the criteria
governing such contracts: lowest price only and most economically advantageous
tender.32 As Christopher McCrudden has written, The virtual disappearance of linkage
in British local authorities by the mid-1990s is one of the clearest, but by no means the
only example of the negative effect of procurement reform on social linkages.33

We ought to seize this historically unique opportunity,


to essentially throw the City under the bus

Unleashed from EU constraints, there are major opportunities for targeting large-scale
public procurement to rebuild and transform communities, cities, and regions. The
vision behind the celebrated Preston Model of community wealth building based
on the principles and work of our own organisation, The Democracy Collaborative,
in Cleveland, Ohio, and being advanced in the UK by the Centre for Local Economic
Strategies (CLES) leverages public procurement and the stabilising power of place-
based economic anchor institutions (governments, hospitals, universities) to support
rooted, participatory, democratic local economies built around multipliers.34 In this way,
public funds can be made to do double duty; anchoring jobs and building community
wealth, reversing long-term economic decline. The goal is not inward investment, which
implies extraction, but rather a re-circulatory model in which we take in each others
wash.35 It suggests the viability of a very different economic approach and potential for
a winning political coalition, building support for a new socialist economics from the
ground up in a way that is far less scary and more comprehensible in a municipal context
than it can appear at the national level.

A RADICAL BREAK
A final, dramatic post-Brexit direction for the British Left might involve taking the
opportunity of the City of Londons potential loss of EU passporting rights to vastly
shrink speculative trading, and rebalance the UK economy away from finance and back
toward real production and social provisioning. Britain has one of the most financialised
economies in the world, with rentier concerns long predominating over productive
investment or social need. Critics have increasingly posited a debilitating finance curse
from this massive and over-mighty UK financial sector, akin to the famous resource
curse afflicting economies endowed with too many valuable natural resources. We ought
to seize this historically unique opportunity, to essentially throw the City under the bus.

32 Nicol, The Constitutional Protection of Capitalism, pp115-16.


33 McCrudden, C (2007) Buying Social Justice: Equality, Government Procurement, & Legal Change, Oxford University
Press, p361.
34 Singer, C (2016) The Preston Model, The Next System Project, http://thenextsystem.org/the-preston-
model/; The Democracy Collaborative, http://community-wealth.org
35 Power, T (1996), Lost Landscapes and Failed Economies: The Search for a Value of Place, Island Press, p37.

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London, at present, remains the largest foreign exchange market in the world, built on
dollar-euro currency transactions that now amount to around $1.2 trillion per day
nearly 200 times nominal UK GDP. There are limited benefits and many costs to the
rest of the economy from this outsized role for the City. As Jan Toporowski points out,
it is, of course, not production within the UK that these transactions are financing,
or even trade between the United States and European Union as a whole, which these
transactions exceed 400 times. Rather, it is the provision of liquidity against other assets,
including financial assets, and derivatives themselves.36 The result is asset price inflation,
particularly of London real estate prices, and the hollowing out of other sectors of
the economy. We urgently need a new approach to finance in the UK that puts public
banking, credit creation, and productive investment at the service of the real economy
and public priorities.
With the prospect of a Corbyn government now tantalisingly close, it is imperative that
Labour reconciles its policy objectives in the Brexit negotiations with its plans for a
radical transformation of the British economy and redistribution of power and wealth.
Beyond the manifesto, the scaffolding of an emerging approach can be seen, based
on alternative models of ownership the most exciting economic programme to be
developed by the Labour Party in 40 years.37 Only by pursuing strategies capable of re-
establishing broad control over the national economy can Labour hope to manage the
coming period of economic pain and dislocation that will occur as a result of exit from
the European Union, not to mention the further shocks inevitable, and therefore to
be confronted squarely stemming from any serious attempt to unwind neoliberalism.
Based on new institutions and approaches and the centrality of ownership and control,
democracy, and participation, the British Left should be busy assembling the tools
and strategies that could permit a radical break with market liberalism, with all the
difficulties and dislocations that implies. In this way, departure from the EU could open
up new political-economic horizons and serve as a catalyst in generating the profound
transformation the country so desperately wants and needs.
Joe Guinan is executive director of the Next System Project at The Democracy
Collaborative. He lives in Washington, D.C., and is a member of Labour
International.
Thomas M. Hanna is research director at The Democracy Collaborative. He
lives in Virginia, and is a member of Labour International.

36 Toporowski J (2017) Brexit and the Discreet Charm of Haute Finance, in Bailey, D and Budd, L, eds.,
The Political Economy of Brexit, Agenda
37 Labour Party (2017) Alternative Models Of Ownership, Report to the Shadow Chancellor of the Exchequer and Shadow
Secretary of State For Business, Energy and Industrial Strategy. http://www.labour.org.uk/page/-/PDFs/9472_Al-
ternative%20Models%20of%20Ownership%20all_v4.pdf

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