Brexit vote and Globalization

united kingdom exit from europe relative image
Source http://masterinvestor.co.uk/category/brexit/

In 1989, the Berlin wall came down and this was also the symbol of the establishment of the new economic world order. The idea was to remove the barriers that prevent the free circulation of goods and people. The European economists believed in this idea and in the resulting benefits from this and politicians implemented this model but paying little attention to the social aspects and consequences coming from this action. The main reason for this implementation was economic, of course (e.g. a bigger qualified labor market available for industries, no barrier for goods’ circulation and better trade agreements with extra-EU countries), and the companies were the ones that most benefit from this. A dream come true: companies got all the support they needed to produce in countries with low wages and sell the goods to the richest ones, making huge profits and paying less taxes. What about people facing this huge economic and social change? Were they prepared to meet and live with the new migrants and were they prepared to compete with more job seekers and probably with better skills that they have? Both economics and politicians believed that providing this new union with one common currency would give a huge advantage for any member of the community. Unfortunately, this has been an issue because: the conversion rate of the old local currencies with the new one was not fair for some countries (i.e. impoverishing some of them and making stronger others); European countries have different economies and they need their own currency to increase exports (e.g. currency depreciation) and optimize imports; states does not mutually support each others, this means whoever needs money has to borrow from central bank.

I believe that globalization has also some advantages especially: as peace keeper (because there is more integration between states and this means more options and opportunities for negotiations), wider free travel area; possibility to increase personal earning and enhances a wider distribution of wealth. Let’s talk about this last point because is crucial in this particular time we are facing.

The idea, for the industries, to relocate productions to countries more convenient in terms of taxation and wages gave the possibility to increase their earnings and created also better jobs in other parts of the World that usually have high unemployment rate and high emigration. Globalization is a revolutionary system, which push people, of mature economies, to reinvent themselves and improving their skills and competences because facing bigger competition.

The main point is that the industrial production shift happened really quick and people had not time to prepare sufficiently for this. Moreover, moving the production means move thousands of jobs (considering also all the small companies satellite of the main ones) and this is very difficult to fix in short time. This situation triggers nationalism and populism because people are scared, are unemployed and they understand they don’t have the same level of wealth they used to have before the current economic system. This situation intensifies the anger and frustration in the society.

People have never stopped giving his point of view about this new economic idea but sometime demonstrations became battle like in 1999 during the World Trade Organization meeting in Seattle. There was a huge protest against the globalization plan with many arrests and injured.

Globalization entails also that every country is connected and related each other. The collapse of the investment bank Lehman Brothers has formally started the World economic recession in 2008 for which, in 2016, we are still struggling with economic growth and fix the problems of that recession. The Brexit has influenced heavily the World financial markets with $2 Trillions lost on 24th of June. Wars and terrorist attacks do not impact one country only but all the World is interested. The wars at EU borders have caused huge immigration towards EU with no a valid and credible answer from EU.

Brexit was also a vote against the globalization, because people voted to restore and fully control their country again. Indeed, the main arguments of the Brexit supporters were:

  1. The EU threatens British sovereignty. The euroskeptics say that EU rules override national laws on important topics such as: competition policy, agriculture, and copyright and patent
  2. Immediate cost saving. In 2015, UK payed £13 bn and they got back only £4.5 bn.
  3. Complete control of the immigration. Under EU law, Britain cannot prevent anyone coming from a member state to stay and live in UK. This is also true for all the Britons that decided to move and live in warm place or benefit for studying or working. According to the office for National Statistics, in UK there are 942.000 immigrants from East Europe and 791.000 from west Europe. From outside UK the immigrants were 2.93 m (majority from China and India). According to the statistics, a part the recent flux of immigrant, the immigration has been positive for UK.

When the EU was established and former communist countries were integrated into the global model, the new integrated Europe aimed to protect its citizens against the worst excesses of the market because it was big and powerful enough.

The recent success of populist and extremists parties is also due to the belief that this new model of Europe has failed to deliver results. Indeed, jobs, living standards and welfare were all better protected before the age of globalization.

People believe that only an elite of them takes advantage from this new system and the rest of them pays the consequences of bankers’ failings.

Therefore, all of us should reflect on Brexit and, in case we want still embrace the current economic model, the system must meet people demands.

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