Jhe age of globalization began the day the Berlin Wall fell. From this point in 1989, the trends evident in the late 1970s and throughout the 1980s accelerated: the free movement of capital, people, and goods; the runoff economy; a very reduced role for nation states; and the belief that market forces, now unleashed, were unstoppable.
There has been a backlash against globalization over the years. The violent protests seen in Seattle at the December 1999 World Trade Organization meeting were the first sign that not everyone saw the movement toward unfettered freedom in a positive light. One of the conclusions of the September 11, 2001 attacks in New York and Washington in September 2001 was that it was not just the commercial and financial markets that had gone global. The collapse of investment bank Lehman Brothers seven years later put an end to the idea that the best thing governments could do in the face of the power of global capital was to step aside and let the banks watch themselves. themselves.
We now have Britain’s rejection of the EU. It was more than a protest against career opportunities that never knock and affordable homes that never get built. It was a protest against the economic model in place for three decades.
Of course, not all of Britain’s problems are the result of its membership of the EU. It is not the fault of the European Commission that productivity is so low or that the trains do not run on time. The deep failures that were there when Britain voted in the referendum last Thursday were still there when the country woke up to the result on Friday.
Evidence of the imbalance in the economy will be provided when the latest UK current account figures are released later this week. These indicate whether the country’s trade and investment income is in the black or in the red. At last count, in the last three months of 2015, the UK had a record peacetime deficit of 7% of GDP.
In another sense, however, the EU is guilty. In the shiny new world created when the former communist countries were brought into the global model, Europe was supposed to be big and powerful enough to protect its citizens against the worst excesses of the market. Nation states were previously the guarantors of full employment and well-being. The controls they imposed on the free movement of capital and people ensured that unions could negotiate higher wages without the risk of offshoring work or bringing cheaper labor into the country.
In the age of globalization, the idea was that a more integrated Europe would collectively serve as a bulwark that nation states could no longer provide. Britain, France, Germany or Italy could not individually resist the power of transnational capital, but the EU potentially could. The way forward was clear. Moving from a single market to a single currency, a single banking system, a single budget and finally a single political entity.
This dream is now over. As Charles Grant, the director of the Center for European Reform think tank, said: “Brexit is a momentous event in the history of Europe and from now on the narrative will be one of disintegration and not of integration”.
The reason is obvious. Europe has not fulfilled the historic role assigned to it. Jobs, living standards and welfare states were all better protected during the heyday of nation states in the 1950s and 1960s than they were in the age of globalization. Unemployment in the euro zone is above 10%. The Italian economy is barely bigger today than it was when the euro was created. The Greek economy has shrunk by almost a third. Austerity has eroded social benefits. Labor market protections have been removed.
Inevitably, there was a backlash, manifested in the rise of left and right populist parties. A growing number of voters believe that the current system offers little. They think that globalization has benefited a small privileged elite, but not them. They think it is unfair to pay the price for banker failures. They yearn for a return to the security that the nation state has provided, even if it means restrictions on the fundamental freedoms that underpin globalization, including the free movement of people.
This has caused great difficulties for the major European parties, but especially those of the centre-left. They have been perfectly happy to endorse the idea of curbing capital movements, such as a tax on financial transactions, and have no problem imposing tariffs to prevent the dumping of Chinese steel. However, they feel uncomfortable with the idea that there should be limits to the free movement of people.
The risk is that if the dominant parties do not respond to the demands of their traditional supporters, they will be replaced by populist parties that will. The French Socialist Party has effectively lost most of its former working-class base to the hard left and hard right, and in the UK there is a danger that the same will happen to the Labor Party, where Jeremy Corbyn’s pass Fair Approach to Immigration clashes with the views of many northern voters who backed Ed Miliband in the 2015 general election but opted for Brexit last week.
There are those who claim that globalization is now like the weather, something we can complain about but cannot change. It is a false comparison. The global market economy was created by a set of political decisions in the past and it can be shaped by political decisions taken in the future.
Torsten Bell, the director of the Resolution Foundation think tank, analyzed voting patterns in the referendum and found that the areas of Britain that were most supportive of Brexit were those that had been poor for a long time. The result was affected by “a deep-rooted national geographic inequality”, he said.
There has been a lot of lazy thinking over the past quarter century about globalization. As Bell notes, it’s time to rethink the assumption that “a flexible globalized economy can generate widely shared prosperity.”
Clearly, a large number of people across Europe do not believe that a flexible, globalized economy works for them. One response to the Brexit vote from the rest of Europe was that a hard line should be taken with Britain to show other countries that dissent has consequences. It would only make things worse. Voters have legitimate grievances about an economic system that has failed them. Punishing Britain will not protect the EU. This will hasten its dissolution.