In 1992, Bill Clinton famously said “It is the economy, stupid.” The clever coinage of James Carville came to stay as one of politics’ much-abused aphorisms. On Friday, British voters signalled to politicians that the economy is about politics.
The referendum was verily a coup in waiting against the political establishment. Seriously, how often does one see the leaders of opposing national parties on the same side of ignominious defeat— David Cameron is on his way out and Jeremy Corbyn must follow. The government asked the people whether Britain must remain or leave the European Union. The voters directed the political class to take control of the fate and destiny of the country.
The point is not what the answer to the question was. The crux is that the question was asked. And the trend is assuming proportions of a contagion. In Italy, Beppe Grillo, leader of the five-star movement which has campaigned for two euros—one for the rich north and one for poor south—wants a referendum. In France, Marine Le Pen, who blames the EU for unemployment and for failing to keep out smugglers and terrorists, wants France to poll on exiting the “decaying EU”. In the Netherlands, Geert Wilders believes the Dutch people deserve a Nexit. In Denmark, the Red Green Alliance and Danish People’s Party have called for a vote.
Stripped of the commotions, the referendum was about political legitimacy, about the definition of self-rule. Ergo, dire warnings—that Brexit will stall investments, pound the currency, stoke inflation, wipe off 5.5 per cent of GDP, hurt trade, aggravate unemployment and push Britain into recession—were summarily overruled. The spectacle witnessed is what Dani Rodrik eloquently described as the “political trilemma of the global economy”—the contest between the sovereignty of the state and the idea of globalisation.
The writing on the wall is explicit. And in Donald Trump, the naysayers have a ‘purr perfect’ brand ambassador. Trump, who landed in Scotland within the hour of the final verdict, declared rather succinctly: “It is a “great thing” that the people of the UK have “taken back their country”. Like it or not, the defining ideas of globalisation are being challenged—and it is best reflected in the Trump campaign where he has promised to build a wall to block migration and reconfigure trade deals, especially with China, to benefit America and Americans.
Brexit is a signal that all bets are off on globalisation. It is not surprising that Alan Greenspan has chosen to describe Brexit as “the tip of the iceberg” and cautioned worse will follow. Brexit will hurt growth now and in the long term. Poor growth will aggravate the opposition to globalisation. There is no room for illusion. This is a moment of inflection—the scent of de-globalisation is in the air. And the blame rests with those charged with promoting globalisation. Fact is, institutions of global governance have been emaciated. WTO has been comatose since the 2001 Doha round. The United Nations, disconnected with demographic reality is reduced to an NGO. The roles of IMF and World Bank have been limited to lending consultancies.
Take Project Europe, originally a coal and steel alliance to facilitate post-war construction, built on in phases to end divisions in Europe. The 1992 Maastricht Treaty, which created the ground for a common foreign and security policy and a citizenship common to nationals, was aimed at promoting “economic and social progress” of the peoples. Embedded in the lofty idea was incompatibility—of sovereignty within a common union. It demanded progress and resolution—and there are templates for functional federalism, the Alexander Hamilton way of America and the Sardar Vallabhai Patel way of India. Neither was deemed possible and the EU has been rendered a halfway house.
The context is just as important as the contest—of arguments for and against the idea of globalisation. Thanks to changing demographics, the engines of global growth are sputtering—developed economies face the challenge of an ageing workforce while less developed ones struggle to employ a burgeoning workforce. This has exposed the many fault lines of globalisation. Indeed, Greenspan averred to it when he spoke about the increasing burden of entitlements and how it has impacted investment and consumption and therefore growth in developed economies.
Till recently, countries—even India—had got used to the idea of free movement of capital, of goods, of technology and were pushing for free movement of people. It was assumed that the theory of wage equalisation would lead to shifting of manufacturing and jobs. In the post-China world, however, there is little room for another China. And premature deindustrialisation is now an accepted phenomenon.
Migration from low-income countries to middle- and high-income countries for low-skilled jobs was seen and touted as a potential win-win solution that could deliver dividends of demography and globalisation. But two decades after WTO, the services sector is wracked by protectionism. Political opposition—driven by concerns about terrorism and loss of jobs—has precluded immigration reforms in Europe and in the United States. Indeed, the presence of 330,000 migrants in Britain did concern some, if not all, of the 33 million referendum voters.
The rise of opposition to globalisation represents the failure of economic and political markets. Strikingly, Britain, which has survived all the major isms —fascism, Communism and republicanism (by loyally retaining royalty)—has flagged the progress and questioned the process of globalism. The unstated question is whether the world is really flat. The debate about rising inequality across the world suggests that it has been flat for a few and not so flat for the many.
The metrics of economics promotes survival of the fittest. The matrix of power in democracy demands governments nurture the weakest. Fundamental to the discourse now is the question whether national governments have the power, the political elbowroom and economic headroom to deal with the consequences of globalisation—be it erosion of savings, value of currency, job losses or de-growth. It is this question that haunts the future of globalisation.
shankkar.aiyar@gmail.com
Shankkar aiyar Author of Accidental India: A History of the Nation’s Passage through Crisis and Change