Brexit – the end of globalisation? | Business | Economic and financial news from a German perspective | DW

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The reasons for the British vote to leave the EU were diverse, ranging from dissatisfaction with the Brussels bureaucracy and hostility towards the political establishment to fear of immigration. From an economic perspective, however, Brexit marks the first tangible setback in globalization since World War II.

“For the first time, a major economy is saying, we better do things for ourselves and make our own decisions,” says Homi Kharas, deputy director of the Global Economy and Development Program at the Brookings Institution, a research institution. Washington. think tank based. “And it’s a bit of a shock to the system,” he added.

For 70 years, globalization has been promoted as the answer to the world’s problems. International trade, capital flows and cross-border movement of people have steadily increased.

The consensus was that more globalization was good for everyone, rich and poor alike. Countless studies and the growth of the middle classes in China and India seem to prove it. And Europe, with its single market and free movement of people, has been the “shining example” of this trend, Kharas noted.

Good for all countries, but not for everyone

But proponents of globalization tend to focus on the big picture, not on individuals and their perceptions. “Economists have always said that countries benefit from globalization,” Kharas told DW. “And they always assumed that the political processes within each country would then find a way to distribute those gains.”

So if a study finds that households in the United States earn $10,000 more each year due to deeper integration into the global economy, that doesn’t say much about how that wealth is distributed. . Because overall, it doesn’t matter if factories have to close in one part of a country, as long as new and better jobs are created in another.

Governments can try to offset the negative effects of declining infrastructure, unemployment, and lack of education by increasing investment, training programs, and taxes, among other measures. “But this process of political redistribution has stopped working as well as we would have liked,” Kharas pointed out.

Fear of emigration

Growing inequality leads to discontent. Added to this is a growing fear of immigration, especially among the less qualified. Kharas calls it “the second dagger penetrating globalization”.

But on Britain’s EU referendum, Kharas says he doesn’t believe the German government’s liberal refugee policy swayed Britain’s vote in favor of leaving the bloc. “I would be surprised if Chancellor Angela Merkel’s bold and courageous decision to admit refugees to Germany had much of an impression or impact.”

His point: Immigration has been a problem in the UK for a very long time. “I was in the UK in the late 1960s. Fifty years ago it was the exact same set of problems.” The only difference is that at the time, immigrants came mainly from South Asia and the West Indies, while today a significant proportion of them come from Eastern Europe, explained the development specialist.

Whether intentional or not, the Brexit vote has set a dangerous example as anti-globalization sentiment is on the rise, says Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics.

“Even before Brexit, the Doha Round of the World Trade Organization was dead, the Trans-Pacific Partnership was facing political hurdles, and micro-protectionist measures were sprouting like summer dandelions,” Hufbauer wrote in a recent item.

In Europe, proposed free trade agreements with the United States – the Transatlantic Trade and Investment Partnership (TTIP) – and Canada – the Comprehensive Economic and Trade Agreement (CETA) – have been embroiled in controversy .

Globalization on hold?

If this trend continued, poor countries would lose the most, Kharas believes. “The developing world has benefited enormously from globalization,” he says and lists better jobs, higher investment and increased attention to the importance of health and education as examples.

Kharas: “We don’t need faster or slower globalization. We need better globalisation’

If the UK’s Brexit vote leads to a global trend towards slower globalisation, “it will be a problem for developing countries and the poor in developing countries”, the Brookings analyst pointed out.

For him, the solution lies in managing globalization in such a way that the concept does not lose the support of the majority of the inhabitants of rich countries. “We don’t need faster or slower globalization,” he said, stressing, “We need better globalization.”

Better globalization would also mean a better system for redistributing profits. The irony is that much of the European bureaucracy in Brussels is convinced that it is doing just that, with the help of large-scale programs for infrastructure, industry, agriculture and education.

Additional reporting by Srinivas Mazumdaru.

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