Both Brexit And Trump-eteers Are Raising The Right Questions

This is also the reason why Donald Trump, after defeating his standard Republican opponents, is now struggling in the opinion polls against Hillary Clinton. Undecided voters look for safety and security in the familiar. It is another matter than Trump has not enhanced his chances in the US presidential race by uncouth behaviour and talk that puts off many voters, but even if he had been halfway likeable, he might still have lost.

But Trump and Brexit symbolise something that we cannot ignore: they have given voice to the losers in the globalisation and technology revolutions. Even the non-losers know that the system isn’t delivering jobs or greater incomes to the greatest number. They know the system is broke, or about to go broke, both in the US and in the European Union. But the questioning goes beyond jobs: however much economists might like to believe in “rational choices” or that man lives by bread alone, the current crises in the Western world is as much about non-material fears. Fears of being swamped by immigrants from a different culture, fears of losing one’s identity, fears of losing one’s political clout to unelected powers.

Long after the world returns to the growth path, these questions will not go away.

The problem with referendums – whether about Brexit or the US presidential race - is that voters have to give straight ‘yes’ or ‘no’ answers to complex issues they can’t even articulate.

You don’t have to like Trump to know that he is raising real issues. The problem is he does not have the answers, for xenophobia, racism and misogyny are not answers. Hillary Clinton may win not because she has better answers (she doesn’t), but because the alternative looks worse. Is this any way to find a leader for the world’s most powerful country?

Those who want out are drumming up a scare over growing immigration and Britain’s contribution to the EU budget. But assuming immigration is blocked and the EU agrees to cut Britain’s budget contribution, is their problem over? Is that really what they want?

Consider: Britain has always been an island power, whose interest in the continent has been restricted to ensuring that no strong power emerges there to challenge its own supremacy. But this is exactly what the EU has ensured - the rise of Germany as the continent’s economic superpower. The EU is Germany’s stomping ground. Britain is at the margins of EU decision-making.

There is a tendency among economists to believe that all political questions should stop if there is an economic case for something. For example, in India’s case, since there is a strong case for the goods and services tax (GST), issues of federalism and political power should not matter. But is it all that simple? Are states resisting GST just because of a possible loss of revenue or because it reduces their room for fiscal manoeuvre?

Why is Brexit such a big deal? Because, once you enter, there is a huge cost to leaving. The same applies to GST. Once states enter, their economic freedom steadily reduces even though their tax revenues may rise in due course. A GST exit can be as hard as Brexit. There is a political price to pay for economic integration. This is what the Brexiters are actually concerned about.

There can be a tradeoff between economic and political freedom. Ask the Greeks. They accepted a bad deal from the EU as they were scared off by the high short-term economic price they would have had to pay by sticking to their guns on debt writeoffs or leaving the EU and starting their own currency. The can has been kicked down the road. The Greeks are in a barrel and they know it. But was the loss of room for political manoeuvre worth the gain in terms of debt relief? The question has not gone away even though Greece remains in the EU.

It is thus worthwhile asking the underlying questions that have given rise to a Trump or the Brexiters.

One, does a nation-state have no right to block those it does not want? While economic logic supports more immigration, is economic logic the only thing that should count? Is there no middle ground between allowing in everybody who knocks at the door, and building a wall to keep those we don’t like out?

Two, should countries not be free to trade economic gains for political and social ones? Or vice-versa? After World War II, it was assumed that a war-weary continent would be happy to forget history and national identities in the common search for growth and prosperity. But this is exactly what Brexit is questioning. It is about Abraham Maslow’s hierarchy of needs. Once you cross the hunger and security threshold, pure economics may play less of a role in your needs. But you can also go back to lower levels of needs when you face an existential threat. The existential threat to the West today comes from Islamism. It has gone back to its base position of the crusades.

Three, why is entry into a trading or economic bloc easier than exit? How does the need to centralise laws and legislation in the EU conflict with the need to federate and devolve power to the people in a democracy?

Four, how are four- and five-year election cycles compatible with monetary and fiscal cycles that need a longer time to play out? The payoffs from fiscal and economic prudence are high in terms of sustainable growth and job creation, but no politician will risk doing the right thing if he is going to lose his job before that.

Six, how does one compensate or help those impacted by immigration, globalisation and automation without disrupting innovation and growth dynamics?

Seven, when individuals feel so powerless in the face of changes that they cannot handle, what is the remedy? Isn’t it this powerlessness that forces them to look at a Trump or Brexit as remedies?

Eight, can economic unions survive without a stronger mechanism for the transfer of resources from rich to poor? What is the point of a common currency when both strong economies like Germany and weak ones like Greece have the same exchange rate? Isn’t that why the euro is struggling? Hasn’t Britain been protected by the fact that it has its own currency? If limited Brexit (no to common currency) has helped, why not full Brexit?

Nine, shouldn’t the world have a conversation on which powers need to be centralised and transcend national borders and which ones shouldn’t? Can current economic power be the only basis for deciding this issue? Can we have globalisation without global governance in critical areas? Why does transgression of a fiscal or monetary nature have different consequences for the US and for Russia, for France or Greece?

Ten, if the world is breaking up into separate trading blocs, should there not be some agreement on what trading blocs can or cannot do? If free trade is a panacea, what is the logic of building Europe like a fortress to outsiders, with free trade only relevant within the Union?

The world has become a complex place, and the forces impacting ordinary people are simply too difficult to control. Trump and Brexit raise questions that need better answers. One referendum cannot solve it; the defeat of Trump is not going to be the end of it all.