Brexit could spell the end of globalization and the global prosperity that comes with it

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The UK House of Commons finally voted for Brexit. If the plan passes the House of Lords without too much delay, the UK will leave the European Union several years after a 2016 referendum committed it to this path.

More than a simple rejection of the EU, this vote represents a rejection of globalization and the implicit compromise of some democratic control over economic policy for prosperity. It’s an exchange that more citizens around the world, including in the United States, don’t want to make – often believing they can earn the same gains without losing economic control.

Inasmuch as economistI think this trend away from the institutions that have facilitated economic globalization is troubling and could lead to the unraveling of more than half a century of growing global integration – and the economic growth that accompanies it.

To avoid this outcome, we must answer the seemingly simple question: how can societies reap the economic benefits of globalization while maintaining democratic participation in it?

Traditional trade barriers

Some of my research has focused on the ways in which democratic societies define their own commercial policies – that is, tariffs, quotas and other types of barriers to the entry of foreign goods and services into their markets.

But since the creation of the General Agreement on Tariffs and Trade after World War II, the ability of countries to do so was increasingly limited by international agreements.

At first, this mainly involved trade barriers like tariffs – US President Donald Trump favorite weapon in his trade wars. While protests against the negative consequences of globalization are not new, the loss of economic control over tariffs has rarely led to a country’s outright rejection this systemmainly because the economic gains were so great.

For example, one estimate of the effect of the EU single market, which has eliminated virtually all trade barriers within the Union, is that it increased members’ GDP 8% to 9% – which translates to an average of about US$3,000 for every man, woman and child.

Beyond Europe, globalization has brought significant gains to billions of people, including helping to reduce the number of people living in extreme poverty from 1.9 billion in 1990 to around 730 million in 2015. That’s a 36% drop in the world’s population to less than ten percent.

“Deep Integration”

But tariffs and quotas are not the only barriers to trade.

Countries around the world all have their own regulatory standards, quality certifications, and other rules that they require companies to follow. Known as technical barriers to tradethey can be just as bad for business than traditional rates. And for global companies, complying with all these different rules can be costly.

Thus, economists and trade negotiators began pushing countries to harmonize regulations governing issues such as the environment, labor and intellectual property. It is in this so-called deep integration that international trade agreements have entered more controversial territory.

The EU, for example, has created a extensive set of harmonized standards and regulations that countries must follow in order to participate in the single market, one of the issues motivating British voters who chose to leave. A famous case in which the EU finally backed down after UK backlash implied that Brussels was trying to impose metric measurements, which would have endangered the beloved pints and miles of the British.

In the United States, the trans-pacific partnershipbrokered by the Obama administration but set aside by Trump in 2017, delved into these issues. Much of the opposition to the deal was born out of the delegation of these sensitive issues to often secret international negotiations.

The paradox of globalization

This trade-off – between the economic gains of global trade and the desire for local control over a country’s economy and markets – is what Harvard economist Dani Rodrik has called “The paradox of globalization.”

It leaves countries with essentially three choices:

  1. They may reject the deeper integration of globalization and risk losing economic prosperity

  2. They can simply cede control of much of their economic policy to prevailing international standards, risking the ire of their citizens.

  3. They can help shape globalization by joining and helping to create the international organizations and agreements that set the standards for trade, giving up some control but having a seat at the table.

I would say that the third option offers the best answer to the question: “How can we retain the gains of globalization without ceding all control?”

The EU is one of the most ambitious attempts to follow the Third Way – and has given countries large and small an equal voice in much of its implementation. Its governing bodies are composed of directly elected members and representatives of the democratically elected governments of the Member States.

However, even this shared authority can pose problems, as evidenced by Brexit. Even if the EU is democratically organised, it does not necessarily follow that the citizens of the Member States feel very attached to its decisions. This sentiment is doubly true in a country like the UK, which traditionally sees itself as separate from mainland Europe.

But policymakers and trade negotiators would be wise to heed voters’ concerns about a loss of control and be cautious about going beyond preventing traditional trade barriers such as tariffs and quotas.

The greatest risk we all face today is that Trump’s trade wars, Brexit and other newly erected trade barriers will become permanent and undo many of the gains the world has made since WWII. We will all be poorer.

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