Post-Brexit, can a 'gentler' model help globalization survive?

Britain’s vote to leave the European Union may have shaken the world, but it will be only the first of many such political earthquakes unless mainstream leaders on both sides of the Atlantic learn its lessons.

For years, a wave of anti-establishment resentment, feeding on anger at widening social inequality and hostility to foreigners, has been building across Europe. Lately, similar nativist forces have made themselves felt in the United States.

Brexit was a body blow to a postwar internationalist economic order founded on globalization; can it survive?

“If we cannot show how we can make globalization fair and inclusive, then antiglobalization movements will continue to mushroom and our politics will revolve around nationality, race or simply identity,” warned former British Prime Minister Gordon Brown.

Elections due over the next 12 months in the United States, Germany, France, the Netherlands, and possibly Britain will give voters plenty of chances to voice their concerns. They also offer mainstream politicians opportunities to present a vision of a kinder, gentler model of globalization that takes more account of local realities – what former US Treasury Secretary Lawrence Summers calls “responsible nationalism.”

The voters who carried Britain out of the European Union, pollsters found, were largely working class, with relatively few qualifications and lower-end incomes, living either in the countryside or in cities that are struggling to switch into post-industrial mode so as to benefit from the service economy.

That demographic closely matches the constituency of the radical right-wing parties that have been doing increasingly well in recent elections on the European continent, says Matthew Goodwin, an expert on the far right at the University of Kent in Canterbury, England.

“The anti-establishment right has been most successful among social groups that don’t feel they are winning from economically integrated global markets, and who feel threatened by immigration and the free movement of people,” Prof. Goodwin says.

The most proximate cause of their ills

The European Union is perhaps the world’s most ambitious experiment in globalization; its 500 million citizens move freely among its 28 member states. So do money, goods, and services in an effectively border-free continent.

Economists across the board agree that globalization has – in general – spurred global economic growth and prosperity. It has certainly been a boon to millions of citizens in emerging economies such as China, India, or Brazil. But there have been losers, too, especially workers in industries in developed countries that have been undercut by competition from China and others.

Data presented by economist Branko Milanovic in his new book “Global Inequality” show that while the world’s best-off citizens, the top 1 percent, saw their incomes rise by about 65 percent between 1998 and 2008, those around the global median of income saw theirs rise about 75 percent, while the salaries of many lower-income people in rich countries stagnated.

Skilled and educated workers, whose jobs could not easily be offshored, were protected. Low-skilled workers doing routine tasks were not. “Globalization has indeed contributed to the observed increase in inequality,” concluded a 2014 study by 34 European research institutes, and “negative wage effects for low skilled workers … are likely to be permanent.”

Voters have turned on the European Union, often seen as bureaucratically aloof and uncaring, as a scapegoat, the most proximate cause of their ills. A recent survey by the Pew Research Center of 10 EU countries found that favorable views of the EU had fallen in all of them over the last decade.

When opposition to globalization first arose, it was voiced and led by far-left groups; demonstrations outside annual G7 summits of industrialized country leaders used to be commonplace.

But they offered no realistic hope of redemption. Instead, Europe’s losers have been turning in droves to populist right-wing anti-EU, anti-immigrant parties. In Austria, the far right Freedom Party candidate is neck and neck with his rival for the presidency in elections due to be re-run in the fall. In the Netherlands, Geert Wilders’ Party for Freedom is comfortably leading the opinion polls. In France, Marine Le Pen, who leads the right-wing National Front, will almost certainly make it into the second round of presidential elections and could even win them. In Germany, the anti-immigrant Alternative for Germany is expected to win its first seats in parliament next year.

If they continue to grow at the rate they have been expanding, these parties could pose a serious problem for the European Union and for its open-border model. Ms. Le Pen and Mr. Wilders are already demanding Brexit-style referendums in their own countries, and the success of the populist right-wing parties “will inevitably lead to a slowing of the EU integration process if not a general halt,” says Professor Goodwin.

The 'great disruption' and a sense of control

Already, they are posing a threat to the traditional Western political order; left and right, liberal and conservative are no longer the only dividing lines, or even, perhaps, the most important ones.

In the United States, the primary season revealed how far both the Democratic and the Republican parties are rent down the middle, with traditional, establishment politicians on one side of the divide and incendiary upstart candidates on the other, railing against the consequences of globalization whether they be immigrants, in Donald Trump’s case, or social inequity, in Bernie Sanders’s.

In the United Kingdom, similar forces are at work. Leaders of both the ruling Conservative party, in the throes of a leadership contest now that David Cameron has stood down, and the opposition Labour Party are defining themselves first and foremost by their attitude to the EU.

“We are living through a great disruption,” says Glen O’Hara, who teaches history at Oxford Brookes University. “Globalization is causing things to blow up in unforeseen ways. This is the great shaking up of the elites in the center.”

Politicians have lost touch with their voters in dangerous ways, worries Elisabeth Guigou, president of the French parliament’s Foreign Affairs Commission. “If there is such a strong rejection of the establishment everywhere … it’s because there is deep anxiety among the peoples of the world and politicians’ stance has become ill-adapted,” she says.

Though the EU had answers for 20th century problems, Ms. Guigou adds, “today the fears are about economic decline, about being submerged by problems that come from the outside that we have not been able to control,” such as the influx of refugees.

That is allowing politicians such as France's Le Pen to put issues such as immigration, national sovereignty, and national identity at the heart of the political debate. “Inequality has become obvious, but it is not part of the debate in Europe,” says Christian Chavagneux, a prominent French economic commentator. “It’s all about Muslims, terrorism, and identity.”

That makes it easier for nationalist politicians to blame problems on outsiders, and to play on voters’ insecurity about their future and their sense they are losing control over their lives. That is especially true in Europe, where “what [voters] couldn’t stand was this distant, unaccountable, opaque, and hard-to-influence group of people in Brussels telling them how to live their lives while eroding their ability to govern themselves,” says John Bolton, a former US ambassador to the United Nations.

“One of the things globalization doesn’t do is it doesn’t give people a sense of control,” says Steven Fielding, a political history professor at the University of Nottingham in England. “People are reacting against that.”

“Unable to see how globalization can be tamed in their interests, they have, not surprisingly, become recruits to an anti-globalization movement whose lightning rod is migration. To ‘take back control’ seems the only way to shelter, protect or insulate yourself against global change,” Mr. Brown, the former British prime minister, wrote in The Guardian last week.

There are no signs that any world leaders are turning their backs on globalization as an economic model; it has, after all, brought unprecedented world prosperity; Mr. Obama reiterated, at a summit with Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau last week, that “we all believe that in an integrated economy, the goal is not for us to try to shut ourselves off from the world.”

“I really can’t see the whole liberal economic project … being disrupted in any significant way,” says Kent Hughes, an expert in economics, globalization, and trade at the Woodrow Wilson International Center for Scholars in Washington.

“But at the same time, all the very serious questions swirling around the EU do serve as a wake-up call to the world’s political and economic leadership,” he adds. “Somehow you have to make sure that globalization is inclusive and that everybody benefits from it.”

“Change and the need for more, not less, flexibility aren’t going to stop,” he says. “The next president, whether it is Secretary Clinton or Mr. Trump, is going to have to pay a lot more attention to how you … address these very deep concerns we’re seeing.”

A broader concept of well-being

Some solutions are practical: For the past 40 years, the United States has operated the Trade Adjustment Assistance program that offers extended unemployment benefits and re-employment services to workers who have lost their jobs because of imports. Denmark recently introduced a similar effort.

Other approaches are more wide-ranging. “If we are going to have more market, we also need more state,” argues Kevin O’Rourke, a professor of economic history at Oxford University in Britain. “Globalization opens people to risk and we need an insurance policy” through expanded welfare.

The European Commission, he says, “must back off its austerity policies and give leeway to governments to put into effect policies their people want … or the whole thing will fall apart. If centrist politicians don’t do anything, there’ll be more upsets like Brexit down the road. There are a lot of banana skins lying about, and if we continue to strew them we are bound to step on one some time.”

It would also help, suggests Karl Aiginger, director of the Austrian Institute of Economic Research, if politicians paid less attention to GDP growth and adopted a broader concept of well-being, based on “economic dynamism, social inclusiveness, and ecological excellence.”

At the same time, says former UN ambassador Bolton, globalization would be more attractive to more people if it were founded on “a union of countries,” rather than blending nation-states in a “smoothie machine.”

It will take courage, in the current political atmosphere, to remind voters that the world is now irredeemably interdependent, says Ms. Guigou, and to speak up against “instinctive reactions."

"We have to admit it, we cannot retreat to our own little territory,” Guigou says.

The problem, however, is that Europe’s leaders are so busy managing its day to day issues that they have not presented an inspiring political vision for the continent. “No one is saying we have a real problem and asking what political project we are selling,” complains Mr. Chavagneux.

Nor, he adds, is there any sign yet of targeted policies to mitigate the suffering that globalization has brought to some. “I don’t think European political leaders have got the message that there are winners and losers in this process and that we should do what we can to help the losers.”

If that message does not get through, even some of globalization’s biggest backers worry about the consequences.

Within a few hours of the Brexit vote, former US Treasury Secretary Summers was calling on his blog for a new “responsible nationalism” that tailors policy to “local interests and local people.”

Simply dismissing popular concerns will only make things worse, he argued. “Channeling this hunger constructively rather than destructively is the challenge for the next decade.”