The shock of the British referendum to withdraw from the EU—Brexit—has been felt around the world. There has been no lack of explanations. There have been ex-post analyses to absorb the unexpected outcome. Has it been a rejection by the poorer, older, less educated, racially prejudiced people of the idea of globalisation, of accessing international markets and accommodating influx of foreign labour? Are the people who voted for Brexit those who were left out of the benefits of globalisation? Is this the end of globalisation?
The principal objection of the Brexiters to the EU is the requirement that there has to be free movement of labour across the EU. Thus, anyone from Romania or Hungary can come to the UK freely and work. The EU has four freedoms at its core: free movement of capital, goods ,services and labour. It was clear that while the UK citizens like three out of four freedoms—what they call access to the single market, they do not like free labour movement.
There is a delicious paradox here. When the latest wave of globalisation began in the early 1990s , there was much talk of a ‘borderless world’ or a ‘flat Earth’. But this was always a fantasy. Nation-states remain the units in which people live. Their political loyalty is commanded by their country and their economic well-being depends on good performance of the domestic economy. Thus, globalisation benefited national economies by encouraging free movement of capital and goods. There has been difficulty in guaranteeing mobility of services since professional qualifications are not standard across the world. Doctors trained in Poland need to prove their competence to work in France.
When it comes to free movement of labour, there have always been restrictions. This is especially true of unskilled labour. Nation-states devise obstacles to free movement—passports, visas, medical examination, etc. In the previous wave of globalisation, before the First World War, there were no passports. There were few nation-states as there were mostly empires. That phase of globalisation foundered on imperial rivalry.
Now, there are many nation-states and no empires. There has also been a growth in democratic polities. We also have the expectation that the state is responsible for the welfare of their citizens. The welfare state was created as a response to the two World Wars and the Great Depression during the inter-war period. This makes citizens insist that the political system look after them.
Movements of capital and goods and services benefits everyone. Free movement of labour benefits the migrant worker and the employers and consumers of the fruits of his labour services. But it does not necessarily benefit the citizen-worker who is competing for the same jobs. As a consumer, he may benefit but not as a supplier of labour services. If the economy is growing and providing full employment, the competition is muted and there is tolerance of the migrant worker. But come recession, the antagonism goes deep. While the better-off can afford to be internationalist, the poorer worker is, and needs to be, a fervent nationalist.
The reaction against immigration which the Brexiters demonstrated is a result of the eight-year-long recession the citizens have suffered since the Lehman Brothers crisis. Immigrants from Poland came in thousands before 2008, but they were absorbed. Many went back when the economy stagnated. But even with the recession, the UK has managed to preserve full employment though there has been no growth in real wages.
There is a similar reaction in the US which Donald Trump has harvested for his support. There is a huge resistance to labour market reform in France. There is a EU-wide crisis concerning refugees from Syria and economic migrants from Africa.
Free movement of labour is the last frontier which globalisation has to guarantee. This would be easy if the entire globe was a single political and economic entity. Otherwise, there will be local resistance to globalisation as we are witnessing.
But this is only as far as the developed countries are concerned. For the rest of the world, the free movement of capital has promoted rapid industrialisation. Manufacturing industry has migrated from the North to the South ever since the oil-price shock of 1973. If we now speak of emerging economies, it is thanks to globalisation. The Chinese economy thrived thanks to globalisation which opened up Western markets to exports from developing countries and capital migrated to help build the export hubs. Developing economies are also exporters of labour and they benefit from remittances sent by their citizens working abroad.
In climate change debates, it was the rich countries which wanted to trade growth for environment while the poor countries were reluctant. Now, the rich countries want to restrict labour mobility but like the other three freedoms. It is the task of the poorer countries to insist that all four freedoms matter for the sake of universal well-being.
The author is a prominent economist and Labour peer