Globalisation as we know it is over and Brexit

is the biggest sign yet

Ruchir Sharma
A popular backlash against open markets may be unstoppable. Stand by for the era of
deglobalisation

A protest against TTIP in Madrid, Spain. Unfettered globalisation lifted millions of

people out of poverty in the emerging world, but it also frayed the social fabric of many
western nations. Photograph: Marcos/Pacific Press/Barcroft
Thursday 28 July 2016 20.24 BSTLast modified on Friday 23 September
2016 12.04 BST
In among the shock from the EU referendum result, the risk of contagion was raised.
Analysts asked which EU country might leave next and whether this unravelling could
shatter the postwar European order. A month later, its clear that Brexit was less a
cataclysmic cause than a symptom; a manifestation of global forces unleashed by the
2008 global financial crisis, including slower growth, rising inequality, and a widening
backlash against open borders and incumbent leaders.
Inside Europe the political earthquake is receding, with the installation of a new UK
prime minister who, ostensibly, did not want to leave the EU. Yet even if Brexit does not
herald the unravelling of Europe or of the global economy, it is the most important sign
yet that the era of globalisation as we have known it is over. Deglobalisation will be the
new buzzword.
The world has entered what I call the AC era after the crisis of 2008. It is already
marked by much more upheaval than prevailed in the era before the crisis, and many of
the policies and leaders that nations have embraced, hoping to ease the pain, have only
made matters worse.
Worldwide, an anti-establishment revolt has been raging since the crisis. In 30 of the
major democracies, the incumbent has been winning in as few as a third of national
elections each year since 2008, down from two-thirds before that year. In the 20 top
emerging and developed nations, the median approval rating of the incumbent leader
has fallen from a high of 54% in the years before 2008, to just 37%.
Economic growth may have to take a back seat while political leaders address public
anger
Anger at incumbent governments is now widely seen as a boon to rightwing populists
such as Donald Trump, Marine Le Pen, and some of the leaders of the Brexit campaign.
This, however, is a revolt against the establishment, not an ideology, left or right.
In Europe and the US rightwing upstarts are exploiting the frustrations of the working
class by blaming their woes on immigrants stealing jobs. But there is no such
widespread rise of the populist right in Asia or Latin America, where voters have been
toppling leftwing governments in favour of mainstream reformers like Mauricio Macri
of Argentina, and Pedro Pablo Kuczynski of Peru. A former World Bank economist

,whose first promise to Peruvians was to rebuild consensus, Kuczynski is about as far
from angry populism as a president can get.
The ballot-box revolts are not isolated, local events. They have sprung from slow growth
in the global economy, which has fallen since 2008 from its postwar average of 3.5% to
just above 2%, the level that feels like a global recession. This is the weakest recovery of
the postwar era, and until recently Europe was the hardest-hit region, having suffered
not one but two recessions since 2008. It has thus been fertile ground for popular
anger.
The popular frustration is amplified by rising inequality. To fight the global slowdown,
central banks have been pumping out easy money. Instead of fuelling wage and job
growth in the real economy, as intended, much of that money has found its way into
financial assets, including stocks, bonds and housing pushing prices to record highs.
Because the rich own most of these assets, inequality is widening and spreading, and
wealth is massing in financial capitals like New York and London. The period since
2008 has seen weak wage growth but spectacular returns for the wealthy: in Britain,
wages are up 13%, but the stock market is up 115%.
This story repeats itself in country after country. In a recent study of 46 major
economies, Credit Suisse found that prior to 2007, wealth inequality was on the rise in
12 of them; but after 2007, that number more than doubled to 35,.
In that brief span, the world population of billionaires nearly doubled to more than
1,800. More than 70 of them live in London one of the highest concentrations in the
world making the British capital a ripe target for class resentments. In England
proper the Brexit vote was, in large part, a vote against London, its globalised elite, and
all they stand for, including free trade and open borders.
Here too, the British revolt is less a turning point than the latest flashpoint for the
negative passions of the AC era. In late 2008 the G20 gathered at a summit and vowed
not to engage in the kind of trade wars that extended the Great Depression. Then they
went back home and have since imposed hundreds of new barriers to trade. This bout of
protectionism has helped to slow growth in global trade from better than 8% before the
crisis to near zero. Britain has turned inward too, imposing more than 200 new trade
barriers after the global financial crisis third most in the developed world after the US
and Germany, according to the Centre for Economic Policy Research.
The hype for globalisation that excited the era before the crash has given way now to
fears of deglobalisation, and the measures governments have taken to buffer economies
against another crisis have only deepened this self-destructive trend. Driven in part
by new limits on their overseas activities, global banks have pulled back to within their
home borders. Global capital flows fell from a peak of 16% of global GDP in 2007 to just
1.6% a level last seen in the 1980s. This retreat will act as a drag on economic growth,
suggesting that every country needs to downsize its ambitions, or face new outbreaks of
frustration.
The anti-immigrant movements that have gathered pace are the latest proof, and they
come at an inopportune time. In countries rich and poor, women are having fewer and
fewer children, a trend that predates the crisis of 2008. Since 1980 the number

of countries with a shrinking population of working age people has risen from 2 to 38.
And one of the only ways for any country to counter the economic shock of
depopulation is by attracting immigrants.
In fact, Britains workforce would already be in decline too, were it not for relatively
strong net migration, which brought in 900,000 people over the last five years. Though
the challenges of assimilating foreign workers are real, so are the economic
consequences of barring them: fewer workers will mean less growth.
But perhaps this outcome is unavoidable now. In the decades before 2008, the world
economy expanded at it fastest pace in recorded history, thanks in part to greater
freedom of movement for goods, capital and people. Unfettered globalisation lifted
millions of people out of poverty in the emerging world, but it also frayed the social
fabric of many western nations. Brexit is just one manifestation of the anti-globalisation
backlash in the post-2008 era. The champions of that backlash are pushing policies that
are likely only to exacerbate the global economic slowdown.
But the message from Brexit and similar movements is clear: economic growth may
have to take a back seat while political leaders work to address the anger of those who
believe that globalisation has left them behind.