Brexit ‘leavers’ are right to feel aggrieved
In the aftermath of the Brexit, it is tempting to paint the leavers as xenophobes or racists. And while there are some unsavory elements within the Brexit movement, it would be simplistic to ascribe the movement’s success to widespread bigotry. Moreover, doing so would be patently dangerous as it would preclude us from understanding and addressing the sources of discontent that underpin the movement’s success. The leavers are right to feel aggrieved.
Economic integration has been sold as a rising tide that lifts all boats. In my undergraduate international trade course, one of the first lessons is that there are gains from trade for all countries. But what often gets overlooked is that within each country there are winners and losers. Some benefit hugely from increased international trade, while others get hurt. The implicit bargain is that for us to collectively agree to trade liberalization, those who benefit must share some of their gains with those who get hurt. In such an arrangement, there is scope for all to gain from freer trade.
The reality, however, is that while trade has brought many of the anticipated rewards, these have not been shared. The Organization for Economic Co-opera- tion and Development reports that between 1975 and 2012 much of the income growth generated has gone to the top 1 per cent of earners.
In the U.S., almost half (47 per cent) of the entire pre-tax income growth was captured by the top1per cent. For Canada and the U.K. this fraction was also large at 37 per cent and 20 per cent, respectively. Figures published by the Economic Policy Institute for the U.S. show that between 1979 and 2014, real annual wages for the bottom 90 per cent of earners rose by only 16.7 per cent, compared to 149.4 per cent for the top 1 per cent and 324.4 per cent for the top 0.1 per cent. Rising inequality is a widespread phenomenon among rich countries.
Freer trade is likely one reason for this increasing inequality, but it is not the major one. Most economists would point to technological change that has decreased the demand for less skilled labour as the major cause. Software and robots are taking over routine jobs. And as the $19 billion (U.S.) acquisition of 55employee WhatsApp showed us, technology has also allowed the creation of firms that generate massive value for the inves- tors and entrepreneurs, while creating precious few jobs.
What is certain, is that immigration has played only a minor role in increasing inequality, if it has played a role at all. Put simply, blaming immigrants for the low wages and lack of jobs is misguided.
Unless we are willing to resurrect the Luddite movement and halt technological progress, increasing income inequality may be a reality that we will have to cope with. This does not mean we have to accept that the rich will get richer while the poor will get poorer.
Governments can ensure a good quality of life for all by implementing redistributive policies and offering quality public services, such as education and health care. Doing so will require that governments tax corporations and the ever growing numbers of the very rich. But doing so is difficult for any one country because these groups are the most internationally mobile. As the Panama papers showed us, it is all too easy for the rich to set up offshore investments and avoid paying taxes.
The reality is that tackling inequality will require international co-operation and governance. Paradoxically, it will require just the sort of political integration that is best modelled by the EU, the very thing that the disenchanted voted to leave.
The leavers are right to feel aggrieved. But their anger at the EU is misplaced and their actions misguided.
Exiting will only serve to weaken the one institution that offers a model for how humanity can tackle difficult global issues such as inequality.