Brexit lessons for India

It reinforces the need for a strong “Look East” economic policy for the country

THE United Kingdom’s shock vote to leave the European Union has roiled global markets and raised deep economic and political questions about the future of globalisation. What are the lessons for India?

First, sometimes it helps to be somewhat peripheral, in times of turmoil. Just as in the case of the global financial crisis of the previous decade, India’s markets have suffered a relatively small blip, and the short-term impact on the economy may be negligible. But India is globally connected, and a further slowdown in global growth, as Europe and the United States struggle with the uncertainty and transition costs of Brexit mean that overall, India’s economic growth will face further global headwinds, making internal reforms even more urgent.

Second, the Brexit vote confir ms the problems of Europe, not just its slow growth, but also its difficulties dealing with increasing economic inequality and social and ethnic diversity. This reinforces the need for a strong “Look East” economic policy for India. Of course, Europe is still wealthy, and will remain an important source of technology and potential buyer of whatever India can figure out how to make, but India’s future rapid growth has to involve greater economic integration with Pacific Asia.

Third, the outcome of the UK referendum highlights the importance of inclusive growth, which is more challenging to achieve in the current global environment than ever before. Citizens in rural areas, in depressed post-industrial areas, older people, and less educated people voted to leave, whereas the young, those with higher incomes and education, and those in more prosperous parts of the UK wanted to remain, on balance. Scotland voted to stay, but that reflects its subordinate status in the UK, which is mitigated by EU membership, and it may well now choose to leave the UK itself, reversing an earlier referendum that rejected independence. The border regions of Northern Ireland also voted to stay in the EU, a reminder of Ireland’s own complex history of divisions. For India, inclusive growth has to remain a priority, but the problems of the UK highlight the difficult challenge of preparing a workforce for the new century, even in a rich, well-educated nation, let alone one in India’s situation.

Fourth, dealing with ethnic diversity is as important as economic inclusiveness. The Brexit vote seemed to reverse much of the progress that the UK has made in recent decades toward becoming a multicultural and plural society. This process was neither smooth nor perfect, with many underlying tensions and issues remaining, but the vote to leave the EU has legitimised open expressions of xenophobia and racism. The US is facing the same problem with immigrants, thanks to the rhetoric of the Republican Party, of which Donald Trump only represents the most forthright expression. India doesn’t seem to need foreigners to exacerbate social tensions associated with diversity and pluralism in areas such as religion and ethnicity. Ironically, even members of the elite, such as South Indian Brahmins, can be labelled as foreign. The current government seems to keep playing with fire in this dimension, whereas India needs to opposite approach to grow rapidly, welcoming diversity and positive new influences and ideas. Fifth, leadership matters. David Cameron made an opportunistic, if not cynical pledge to hold the referendum, to appease the right-wing of his party in the face of pressure from proto-fascists and nativists in the UK Independence Party (UKIP). He certainly did not expect this result. Surely, he has to be ranked as one of the worst British leaders ever. He also gave a platform to the UKIP leader, Nigel Farage, elevating him above previous British politicians of his ilk who have flourished from time to time in the UK. The quality of Farage’s own leadership is abysmal, including blatant falsehoods during the Brexit campaign, but the referendum gave him the spotlight and an undeserved political victory. The former mayor of London, Boris Johnson, and the Labour Party leader, Jeremy Corbyn, round out a quartet of incompetent and self-serving political leaders that have damaged their country. India has had leadership of varied quality over the decades, but clearly it is going to need high quality political leadership going forward, and not just one person.

Brexit was the outcome of a complex set of circumstances: major economic trends of technological change, a wave of globalisation that hit the wall of a severe financial and economic crisis, political instability in another region that was triggered by flawed US policy and spilled its human impacts across Europe, and myopicdomesticpoliticalmanoeuvring. The outcome is not economically disastrous—shooting oneself in the foot rather than in the head, but the political implications, if those who want narrow nationalism and fear diversity and pluralism have their way, could be much more severe. All of that gives India’s leaders and citizens much to reflect upon.

The problems of the UK highlight the difficult challenge of preparing a workforce for the new century, even in a rich, well-educated nation, let alone one in India’s situation

The author is professor of economics, University of California, Santa Cruz