Brexit shows need to address discontent

The working class has been hammered by globalization.

By Parikshit Ghosh

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Published: Tue 19 Jul 2016, 12:00 AM

Last updated: Tue 19 Jul 2016, 2:00 AM

The Brexit vote is only a few weeks old but Britain is already coming apart at the seams. The political establishment is imploding, but what is more interesting is the new culture war. Poll data show Leave voters to be disproportionately low income, less educated and from the provinces rather than the cities. The rebuffed London elite can barely conceal their scorn.
The falling pound and stock prices make the right-leaning economists and business experts (whom Michael Gove rudely dismissed as irrelevant) feel vindicated. Reported incidents of racism reinforce the feeling among left-leaning sections of the elite that multicultural Britain is under siege from within by nativist forces. It is suddenly respectable to say that the British working class (and its American Trump-enamoured counterpart) is xenophobic, stupid and full of blind resentment.
It will be a serious mistake to view the Brexit revolt exclusively through the prism of economic efficiency or multiculturalism, ignoring the distributive conflicts that built up to it. The working class in many developed nations has been hammered by globalisation over the last few decades. Populist right-wing movements are on the rise in Europe and elsewhere because they alone articulate a clear acknowledgment of the problem and offer one kind of solution - trade and immigration restrictions.
The political left is struggling because it adopts inconsistent postures and clings to an agenda of the past. Its prominent voices are drawn from an educated elite who have been the beneficiaries of globalisation, not its victims. There is reason to believe, however, that the economic forces that started asphyxiating the working class 40 years ago will eventually catch up with the white-collar professionals. It is essential for the left to discover a new paradigm for income and wealth redistribution that goes much beyond the welfare state.
There has been a remarkable rise in economic inequality in the Western world in the last 30 years, especially in the Anglosphere (UK and US in particular). This has completely unravelled the reduction in inequality that was achieved in the decades after the Second World War and has restored it to levels last observed in the pre-Depression era, when capitalism was untamed. In the US, the share of GDP earned by the top 1% of households fell from 24% in the late 1920s to 9% in 1970, but has shot up since to 20% in 2011.
What is behind this great unravelling? It is important to distinguish between the main villain and the supporting cast. Progressive taxation and the protections of the welfare state have been cut back by right-wing governments going back to Ronald Reagan and Margaret Thatcher, but that does not explain the rise in pre-tax inequality. The decline of the labour unions may have also played a role, but it should be seen more as a symptom of the labour force's weakening bargaining power in the face of economic fundamentals rather than a cause. Globalisation is the prime suspect.
Wages in the industrial world rose significantly after the war in response to labour scarcity and rising labour productivity. From the late 70s and early 80s, however, the protected pool of well-paid Western workers was exposed to competition from cheap Third World labour (and later automation), thanks to lower shipping costs, modern communication technology and freer trade. This, more than anything else, pulled out the rug from under the feet of the working class.
It is interesting to ask: what would happen if all restrictions on immigration were removed? A Gallup poll found that an estimated 700 million people worldwide would like to emigrate to another country, with the most preferred destinations being a handful of rich nations. If the entire world became borderless, Gallup estimates that the UK population will rise from 61 million to 107 million. If only the UK did away with immigration control, this figure would be much larger, because many immigrants whose first choice destination is some other rich country will be deflected into the UK.
When a boat sinks from one end, the other end is often propped up high above water, leading to a scramble to reach there and a false sense of security among those who already have. The idea that education is the key to escaping the ravages of globalisation in rich societies is similarly illusory. The real key is financial wealth, whose returns are steadily going up. The enraged cosmopolitans who are denouncing the revolt of the underclass derive their comfortable lives from human capital, not financial portfolios. They are in the same sinking boat.
Parikshit Ghosh teaches at the Delhi School of Economics
Extracts from a write-up in The Wire

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