For decades, financial and political leaders have preached the inevitability of globalization, promising nations that by sacrificing some of their sovereignty and dropping national barriers they could reap far greater rewards through economic integration and cooperation. And that turned out to be largely true.
But Britain’s surprise vote to leave the European Union signals a new era for the post-World War II globalization drive, exposing deep populist anger and leaving open the question of how best to rein in an increasingly connected and interdependent world economy.
The vote was perhaps the biggest public referendum to date on globalization, and it yielded a far different outcome than in 2014, when Scots voted to stay part of Britain.
Now Britain and other Western democracies are likely to face growing pressure to put the brakes on open trade and immigration policies that have been hallmarks of world growth.
“The age of globalization has certainly ended,” said Fredrik Erixon, director of the European Center for International Political Economy, an independent think tank in Brussels.
Few are predicting a scenario in which major borders are closed and protectionism rules the day, but the sentiments underlying the British public’s rebellion are broadly shared by many others in the EU, as well as in the United States.
Policymakers and investors are particularly worried that Britain’s move will be a catalyst for a re-energized effort by Scots — who overwhelmingly favored remaining in the EU — to break away from Britain. It may also encourage other secession movements in the EU, which could fundamentally alter the political and economic structure that has been in place for decades.
“With one fell swoop, the world order has been turned upside down overnight, and where the chaos stops, no one knows,” said Chris Rupkey, chief financial economist for Mitsubishi UFG Financial Group.
The backlash stems from a growing realization that the biggest winners of globalization have been international corporations, wealthy families, skilled and educated workers, and those with easy access to capital. Older, working-class families in many Western nations have instead struggled with stagnant wages, job losses and staggering debt. Income inequality has grown worse in many of the countries that have embraced globalization.
At the same time, forces that once propelled globalization — advanced technologies, reduction of barriers and the rise of China and other developing economies — have diminished. World trade and economic growth have also slowed in recent years.
With the Brexit vote, the European Union — itself arguably the most ambitious post-World War II experiment in globalization — appears at risk of unraveling.
“In the postwar period, with the shadow of world wars and the shadow of the USSR no longer over Europe, countries are increasingly ready to go back to nationalism,” a European diplomat told reporters in Washington on Friday, speaking anonymously to comment on other countries’ politics.
The forces driving those populist uprisings, both against EU bureaucrats in Brussels and elected officials in Washington, are complex and intertwined. They include long-simmering racial tensions and increased political polarisation. But across the West, the Serbian-American economist Branko Milanovic argues, the rise of populism corresponds to a decline in the income share held by the broad middle classes of those countries.
Milanovic has studied global inequality trends extensively, and is the creator of a semi-famous chart showing how the rise of global trade boosted incomes for the poorest and very richest workers in the world — everyone, really, except for the working class in the West. In a recent blog post, Milanovic writes that in the United States and other rich countries “populism is rooted in the failure of globalisation to deliver palpable benefits to its working class.”
With the Brexit vote, the populist movement can already claim a victory: It has won a clear reversal from the economic-integration trend of the past decades.