Globalisation
as we know it is over – and Brexit is the biggest sign yet
A
popular backlash against open markets may be unstoppable. Stand by
for the era of deglobalisation
Ruchir Sharma
Thursday 28 July
2016 20.24 BST
In among the shock
from the EU referendum result, the risk of contagion was raised.
Analysts asked which EU country might leave next and whether this
unravelling could shatter the postwar European order. A month later,
it’s clear that Brexit was less a cataclysmic cause than a symptom;
a manifestation of global forces unleashed by the 2008 global
financial crisis, including slower growth, rising inequality, and a
widening backlash against open borders and incumbent leaders.
Inside Europe the
political earthquake is receding, with the installation of a new UK
prime minister who, ostensibly, did not want to leave the EU. Yet
even if Brexit does not herald the unravelling of Europe or of the
global economy, it is the most important sign yet that the era of
globalisation as we have known it is over. Deglobalisation will be
the new buzzword.
The world has
entered what I call the AC era – after the crisis of 2008. It is
already marked by much more upheaval than prevailed in the era before
the crisis, and many of the policies and leaders that nations have
embraced, hoping to ease the pain, have only made matters worse.
Worldwide, an
anti-establishment revolt has been raging since the crisis. In 30 of
the major democracies, the incumbent has been winning in as few as a
third of national elections each year since 2008, down from
two-thirds before that year. In the 20 top emerging and developed
nations, the median approval rating of the incumbent leader has
fallen from a high of 54% in the years before 2008, to just 37%.
Economic growth
may have to take a back seat while political leaders address public
anger
Anger at incumbent
governments is now widely seen as a boon to rightwing populists such
as Donald Trump, Marine Le Pen, and some of the leaders of the Brexit
campaign. This, however, is a revolt against the establishment, not
an ideology, left or right.
In Europe and the US
rightwing upstarts are exploiting the frustrations of the working
class by blaming their woes on immigrants stealing jobs. But there is
no such widespread rise of the populist right in Asia or Latin
America, where voters have been toppling leftwing governments in
favour of mainstream reformers like Mauricio Macri of Argentina, and
Pedro Pablo Kuczynski of Peru. A former World Bank economist ,whose
first promise to Peruvians was to rebuild “consensus”, Kuczynski
is about as far from angry populism as a president can get.
The ballot-box
revolts are not isolated, local events. They have sprung from slow
growth in the global economy, which has fallen since 2008 from its
postwar average of 3.5% to just above 2%, the level that feels like a
global recession. This is the weakest recovery of the postwar era,
and until recently Europe was the hardest-hit region, having suffered
not one but two recessions since 2008. It has thus been fertile
ground for popular anger.
The popular
frustration is amplified by rising inequality. To fight the global
slowdown, central banks have been pumping out easy money. Instead of
fuelling wage and job growth in the real economy, as intended, much
of that money has found its way into financial assets, including
stocks, bonds and housing – pushing prices to record highs. Because
the rich own most of these assets, inequality is widening and
spreading, and wealth is massing in financial capitals like New York
and London. The period since 2008 has seen weak wage growth but
spectacular returns for the wealthy: in Britain, wages are up 13%,
but the stock market is up 115%.
This story repeats
itself in country after country. In a recent study of 46 major
economies, Credit Suisse found that prior to 2007, wealth inequality
was on the rise in 12 of them; but after 2007, that number more than
doubled to 35,.
In that brief span,
the world population of billionaires nearly doubled to more than
1,800. More than 70 of them live in London – one of the highest
concentrations in the world – making the British capital a ripe
target for class resentments. In England proper the Brexit vote was,
in large part, a vote against London, its globalised elite, and all
they stand for, including free trade and open borders.
Here too, the
British revolt is less a turning point than the latest flashpoint for
the negative passions of the AC era. In late 2008 the G20 gathered at
a summit and vowed not to engage in the kind of trade wars that
extended the Great Depression. Then they went back home and have
since imposed hundreds of new barriers to trade. This bout of
protectionism has helped to slow growth in global trade from better
than 8% before the crisis to near zero. Britain has turned inward
too, imposing more than 200 new trade barriers after the global
financial crisis – third most in the developed world after the US
and Germany, according to the Centre for Economic Policy Research.
The hype for
globalisation that excited the era before the crash has given way now
to fears of deglobalisation, and the measures governments have taken
to buffer economies against another crisis have only deepened this
self-destructive trend. Driven in part by new limits on their
overseas activities, global banks have pulled back to within their
home borders. Global capital flows fell from a peak of 16% of global
GDP in 2007 to just 1.6% – a level last seen in the 1980s. This
retreat will act as a drag on economic growth, suggesting that every
country needs to downsize its ambitions, or face new outbreaks of
frustration.
The anti-immigrant
movements that have gathered pace are the latest proof, and they come
at an inopportune time. In countries rich and poor, women are having
fewer and fewer children, a trend that predates the crisis of 2008.
Since 1980 the number of countries with a shrinking population of
working age people has risen from 2 to 38. And one of the only ways
for any country to counter the economic shock of depopulation is by
attracting immigrants.
In fact, Britain’s
workforce would already be in decline too, were it not for relatively
strong net migration, which brought in 900,000 people over the last
five years. Though the challenges of assimilating foreign workers are
real, so are the economic consequences of barring them: fewer workers
will mean less growth.
But perhaps this
outcome is unavoidable now. In the decades before 2008, the world
economy expanded at it fastest pace in recorded history, thanks in
part to greater freedom of movement for goods, capital and people.
Unfettered globalisation lifted millions of people out of poverty in
the emerging world, but it also frayed the social fabric of many
western nations. Brexit is just one manifestation of the
anti-globalisation backlash in the post-2008 era. The champions of
that backlash are pushing policies that are likely only to exacerbate
the global economic slowdown.
But the message from
Brexit and similar movements is clear: economic growth may have to
take a back seat while political leaders work to address the anger of
those who believe that globalisation has left them behind.
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