Brexit, Trump, and Globalization’s Have-Nots

CAMBRIDGE – Two political events that are attracting global attention these days – the vote in the United Kingdom to leave the European Union and Donald Trump's presidential campaign in the United States – have much in common. Just over half of UK voters chose "Brexit," a result that has cast a long shadow over their country's political system and economic prospects. Perhaps understanding the parallels between the two campaigns will help US voters avoid taking a similar path in November.

One parallel is that both campaigns were thoroughly underestimated, especially by experts and establishment figures. Just as the possibility of Brexit was initially dismissed, few political elites, Republican and Democratic alike, took seriously Trump's bid for the Republican nomination.

Another similarity is that both campaigns have been based largely on implausible, even absurd, promises. In the UK, "Leave" campaigners assured voters that the UK could maintain access to the single market after withdrawing from the EU, while limiting the entry of European workers to the UK. They also declared that the £350 million ($465 million) supposedly sent to the EU each week would be reallocated to the cash-strapped National Health Service.

Within hours of the referendum result, the "Leave" campaign's leaders began to backtrack, spurring anger among many voters, particularly those whose support for Brexit had been driven by the desire to cut immigration. Yet Trump's own implausible promises – including his pledges to construct a wall between the US and Mexico and bring back manufacturing jobs from overseas – still seem credible to many voters.

These parallels point to one conclusion: many working- and middle-class voters, who feel left behind by globalization, are far angrier than establishment leaders realized. They can no longer be dismissed; instead, leaders must figure out how to address their concerns.

There are winners and losers in globalization. But a fundamental proposition in economics holds that when individuals are free to engage in trade, the size of the economic pie increases enough that the winners could, in theory, compensate the losers, leaving everyone better off.

Globalization skeptics are right that, in practice, the compensation tends to remain hypothetical. But the suggestion that we should try to roll back globalization is problematic for a simple reason: globalization can't be undone. Any effort to put the genie back in the bottle might not only trigger trade wars, with serious consequences for economic growth, but would also fail to reduce trade to the levels of 50 years ago. No national leader could restore, say, steel-industry employment to what it was in 1966.

Fortunately, there is a better option. We can take globalization as a given, and adopt measures to help compensate those who might naturally lose out.

In the US, measures that could help to achieve that include Trade Adjustment Assistance, a program aimed specifically at helping those who have lost their jobs due to trade. More important programs – which could help those left behind by trade, technology, or something else – include an expanded Earned Income Tax Credit and health insurance.

Democrats, including President Barack Obama and Hillary Clinton, the presumptive Democratic nominee to succeed him, largely support these policies. Yet Republicans have opposed them. It seems likely that Trump would reject such efforts as well, even as he claims to be the savior of the working class.

Trump's rise reflects the extent to which political polarization in the US has deepened during the last eight years. As political moderates have been pushed out, policy gridlock has worsened, with presidential initiatives routinely blocked by congressional Republicans, even when such proposals were consistent with Republican ideas. None of this bodes well for the losers of globalization; they need leaders – of both parties, in Congress and the executive branch – who can come together to protect their interests.

Until recently, the British electoral system seemed to represent an admirably balanced approach. The two largest parties largely operated under competent and consistent leadership and represented relatively well-defined policy stances – center-right for the Conservatives, and center-left for Labour. In this environment, voters could base their choices on the issues at hand. And, under the parliamentary system, victorious prime ministers could work to carry out the policies on which they had campaigned.

Yet even Britain's "competent" leaders sometimes made fatefully ill-advised decisions. From Margaret Thatcher's introduction of a poll tax to Tony Blair's support for the US-led invasion of Iraq, to David Cameron's decision to hold the Brexit referendum, such decisions have undermined the British system.

What is left now, after Cameron, is a mess. The new crop of politicians shows little clarity or consistency. When the next election is held, voters could well be asked to choose between parties that do not correspond in any clear way to the relevant policy decisions that Britain must make – mainly, whether to seek to negotiate a relatively close association with the EU or to separate completely.

In this sense, American voters might still be better off than their British counterparts. Though Trump's appearance indicates that the US political system has also deteriorated markedly, the Democrats still favor policies like wage insurance and universal health insurance, and the Republicans still oppose them. So, in November, American voters are still making a choice about one of the leading issues on their minds: whether to address the reality of globalization by helping those who have been left behind, or to tilt at windmills, like the Brexiting British.


Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

© Project Syndicate 1995–2016


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