Trump’s victory, Brexit vote and rising European populism threaten the march of globalization
BY STEPHEN FIDLER
This year is different. As the world’s financial, corporate and political elites gather this week for the annual meeting of the World Economic Forum in the Swiss mountain resort of Davos, the global economic order is teetering. The question is whether it can be rescued.
In 2016, history began another chapter. Donald Trump’s U.S. election victory and Britain’s decision to leave the European Union reversed a march toward ever-closer global economic integration under way since the end of World War II.
Across continental Europe, antiestablishment political movements have gained ground, fostered by an anemic recovery from the eurozone’s debt crisis that kept wages stagnant and unemployment high in many countries. Their influence could grow further with elections this year in France, Germany, the Netherlands and possibly Italy.
Many hail these developments as a sign of once-disenfranchised people retaking control of their destinies. Others, including those of the global elite gathering this week in Davos, fret that these and other developments risk unraveling international connections that have produced unprecedented wealth.
At the heart of the shift is a fundamental paradox of the postwar global economy: Free trade, greater interconnectedness and rapid technological change have lifted billions of people out of poverty and created a burgeoning middle class in the developing world.
Wealthy countries have grown richer, too. But the benefits have gone disproportionately to a minority, leaving many people feeling left behind or alienated. Globalization—characterized by free flows of goods and capital and national acceptance of international norms—has been good at creating wealth but less successful at maximizing people’s welfare.
Some historians who have studied past periods of globalization question whether the modern version can limp on.
“My hunch is that we are not going to muddle through,” said Harold James, a professor at Princeton University.
Breakdowns in past phases of globalization, such as the one that preceded World War I, “were characterized by eruptions of unexpected sudden crises that highlight new fault lines,” he said. “The world is terribly vulnerable now” to events like last year’s assassination of the Russian ambassador to Turkey that can escalate out of control.
In terms of overall well-being, the global economy has been doing something right. A World Bank report published in October showed the number of people living in poverty fell to 10.7% of the world’s population in 2013, the latest year for which figures are available, from 35% in 1990, even as the world’s population expanded by almost two billion people.
Yet, inside many of the world’s richer countries, something has gone wrong. Since the 2008 financial crash, economic insecurity in many Western countries has increased and income and wealth disparities have widened.
Technological change is in part responsible for widening income and wealth gaps, benefiting high-skilled, better-educated individuals. The winners appear to be concentrated in globalized urban centers, leaving many struggling in rural areas or smaller cities.
A study by the Resolution Foundation, a British think tank, suggested some important parallels between Brexit and the Trump victory. Poorer areas in the U.S. swung to Mr. Trump, compared with 2012. In Britain, less-affluent parts of the country were more likely to vote for Brexit.
Areas with larger numbers of older voters swung to Mr. Trump and were more likely to vote for Brexit. The single-most-important variable was education: The less educated were more likely to vote for Mr. Trump and Brexit.
There are similar patterns elsewhere in Europe. Older, less-educated voters tend to be more worried about immigration and support for antiglobalization parties is strong in many postindustrial regions. A Pew Research Center survey last year concluded, “Older Europeans tend to be more inward looking than younger ones.” The average age of European voters is increasing, too.
Growing inequalities have manifested themselves in different ways across economies. In the U.S., unemployment is low and average wages have risen since the crash—but labor-force participation is at almost 40-year lows, suggesting many adults have given up on looking for work.
In the U.K., unemployment is low and labor-force participation rates high, but real wages have declined by 10% since the crash, as severely as in debt-torn Greece. Across much of continental Europe, unemployment rates remain stubbornly high.
These developments, combined with anxieties about immigration and terrorism, have encouraged a backlash against mainstream politicians and associated elites.
Fanning the trend, Western officials say, is Moscow. Donald Tusk, who presides over meetings of EU leaders, said in October that Russia sought to weaken the EU by, among other things, “disinformation campaigns, cyberattacks, interference into the political processes in the EU and beyond, hybrid tools in the Balkans.” In an unprecedented assessment, U.S. intelligence agencies say Moscow also interfered in the U.S. election in an effort to help Mr. Trump.
The beneficiaries have been political movements or individuals that combine an appeal to cultural identity, often using anti-immigrant or xenophobic rhetoric, with an antiestablishment narrative.
Despite their nationalist stances, these groups often support one another. UK Independence Party leader Nigel Farage, who regularly appears at events with other European antiestablishment politicians, was the first foreign politician to meet with Mr. Trump after his election. Mr. Trump’s chief strategist, Steve Bannon, who says policies of globalism have hit poorer Americans, has described himself as “an economic nationalist” who has “admired nationalist movements across the world.”
Assertive nationalism is often mixed with economic policies picked from left or right or both. It has variants, Prof. James says, in the Anglo-Saxon world, in southern Europe where it tends to be more left wing, and in Eastern Europe.
On the campaign trail, Mr. Trump promised tax cuts, usually associated with the right, and made pledges usually associated with the left to protect social-welfare payments and clamp down on international trade he sees as disadvantaging Americans.
Mainstream economists disagree on a lot of things, but most of them agree that raising barriers to trade, a path countries including the U.S. adopted in the early 1930s, is bad for growth. Without growth, political decisions about distribution of national income become more fraught.
For many economists, the solutions proposed by populist groups are thus likely to be worse—and possibly much worse—than the problems they purport to solve.
Globalization has also needed a sponsor. Britain played that role through much of the 19th century and the U.S. into the current era. But now, the U.S. seems to be turning inward, even though it has largely set and policed the rules of the international game. That has left a vacuum in the Middle East into which others, notably Russia, have stepped.
Russia has long railed against U.S. leadership, but though a powerful geopolitical player that can destabilize its neighbors, it has no economic heft. On current trends, the EU looks more likely to crumble—or at least to shrink—than take over the mantle of the global economy.
The only other possible replacement is China. In the financial crisis, people looked to China to stabilize the global economy, which it helped to do. In a significant gesture, as America occupies itself with its presidential inauguration, Xi Jinping is due to become the first Chinese leader to attend the Davos forum and lay out China’s vision of the globalized world.
Yet China’s readiness for the leadership role is in question, even in the unlikely circumstance that others, like Mr. Trump, were ready to let it happen. A world of even greater uncertainty beckons.