Life After Brexit: What Awaits Britain in its Splendid Isolation

Britain’s ‘yes’ to quit the EU could could trigger reverse globalisation and protectionism, fears Parikshit Ghosh.

The moon has finally set on the British empire. June 23 is a significant date in history.

On this day in 1757, Lord Clive defeated Siraj-ud-Daulah’s army at the Battle of Plassey, opening the door to Britain’s dominance in the world. Two-and-a-half centuries later, on another 23 June, the British people voted to shut the door on Europe and retreated into their little island. Brexit actually happened.

Not Its Finest Hour

• Two distinct passions animate the groundswell of support for Trump, Brexit or Europe’s far right parties.
  
• Globalisation has given rise to xenophobia and cultural chauvinism besides leading to economic resentment and despair.
  
• For years now, growing gap between the rich and the poor in the industrialised world has reached breaking point.
  
• Rising inequality in the West can be released by redistributing the gains of globalisation.
  
• Redistribution must be done through new institutional arrangements.
  
• Brexit could trigger reverse globalisation, protectionism, capital controls and steep trade barriers.
  
• As Britain prepares to lock itself in, Brexit could give Make in India competition from Make in Yorkshire or Make in Pittsburg.
  

Clive took advantage of division in the Indian ranks to secure the fledgling empire. The Brexit vote has now opened up deep cracks in British society itself, its political parties and its national self-image.

The rest of the world watches this in awe and bewilderment as similar storms gather across many of the developed nations. In America, populist demagogue Donald Trump is riding on isolationism and chauvinism to lay his claim on the White House. He is one step away.

The Faultlines

As details of the poll come in, the fault lines are becoming clear. The well-educated, the young, the affluent, the non-whites, all voted to remain in the EU in large numbers. The less educated, white, poorer, older, small town Britons from working class backgrounds, voted to leave.

This map illustrates it quite nicely – the Europhones are huddled in islands of yellow coinciding with cosmopolitan urban centres like London, Manchester and Oxford. They are surrounded by a sea of blue – wide swathes of resentment and withdrawal.

There is a similar map of the United States.

There are two very distinct passions that animate this groundswell of support for Trump, Brexit or the far right parties of Europe. Both have to do with globalisation and its discontents, but understanding only one will produce a distorted view.

Threat From Foreigners

The first passion is xenophobia and cultural chauvinism – a growing sense that a way of life is under threat by the invasion of the barbarians, who bring with them crime, terrorism, the veil and a lingering smell of curry.

Urbane citizens, who can both afford and enjoy sushi, French wine and foreign vacations, find this nativism utterly abhorrent. The plebeians, sensing the sneer and disgust with which they are held by their peers, double up on their resolve to thumb their noses at them.

Trump’s poll numbers have held steady despite toxic outbursts against Mexicans and Muslims.

Economic Despair

The second passion, which mixes with the first in a volatile cocktail, is economic resentment and despair.

Living standards of the masses rose dramatically in the West, especially after the Second World War, because labour was a scarce resource. Wages soared as productivity improved.

Starting in the 1980s, thanks to falling shipping costs, improved communication technology and freer trade, the floodgates opened. A protected pool of workers suddenly found itself in competition with cheap labour from the Third World, and more recently, robots and machines.  

Wages ground to a halt and jobs started getting shipped to the manufacturing hubs of East Asia and the call centres of India. Some jobs were stolen from right under their noses by immigrants.

Economists say the free movement of goods and people across national borders increases the size of the pie. Worshippers of multiculturalism claim it broadens our horizon.

These two ideas, quite true in themselves, have merged to create a powerful consensus among the elite about the virtues of integration and globalisation. Trouble is, it can also affect how the pie is divided.

For the last 40 years in the industrialised world there has been a growing gap between the rich and poor, capitalists and labourers, white and blue collar workers. It has reached a breaking point.

British Politics

Talk about the economic cost of Brexit has become technocratic, short sighted and alarmist.

Britain’s withdrawal from the common market is neither going to halt its trade with the EU nor dry up investment from across the channel. Its new immigration policies are very much up to its political leadership and London is quite capable of creating red tape or waste without Brussels’s help.

The real consequence of Brexit lies in its symbolic meaning and what it portends for the future of British politics.

Where Does India Stand?

Here again, a lot of the discussion seems to be going off into counting pennies rather than pounds. Some of the intra-EU trade may be diverted India’s way and the splintering of the common market may increase our cost of accessing it. From a longer term perspective, this is really not what we should be worried about.

The enormous political pressure that has built up due to rising inequality in the West can only be released in one of two ways.

One, these nations could find ways to spread around the gains from globalisation by substantial redistribution of income. To get there, the cultural elite and social democratic parties must rise above their loathing of reactionary movements and look at their root causes.

They also have to find new institutional arrangements to carry out the redistribution. The New Deal programmes or the welfare state will not be enough, since they are designed more to absorb temporary economic shocks like unemployment, sickness and old age rather than compensate for disappearing livelihoods of even the middle class.

The other possibility is that these nations turn inwards, reverse globalisation, embrace protectionism, capital controls and steep trade barriers. Brexit may be the tip of that iceberg.

It is ironic that in the same week that Britain left Europe, India announced relaxing the rules on Foreign Direct Investment, riding on a high of increased FDI inflows in the past year. The Chief Economic Advisor wrote an op-ed with renewed optimism about our long awaited manufacturing boom, seeing an opportunity in the rising labour costs in China. Just as we go courting foreign capital, it may be preparing to lock itself in.

The prospect that Brexit raises is that Make in India may run up against Make in Yorkshire or Make in Pittsburg in the not too distant future.

(The writer is Associate Professor, Delhi School of Economics. He can be reached at @prkghosh)