Economics and politics - comment and analysis

The Brexit as a symptom of a haemorrhaging world. Part 2. The global neoliberal nightmare

  1. A dramatic increase in global inequality

While there are enormous economic and political problems that are specific to the European constellation, the problem is wider. This means that the solution also has to be wider. The whole prevailing global model of neoliberal capitalist economic orthodoxy is broken. It is this model which has increasingly led to disorganisation and regression of social progress on key indicators worldwide – not just in the developing world, but also across developing nations. Some months ago, Jason Hickel from the London School of Economics explained in the Guardian how incredibly bad the situation really is. Policy-makers go on pretending that great progress is being made, that, for example, global poverty has been halved since the 199os. Hickel presents evidence that global poverty increased dramatically. The argument of many policy-makers and institutions as the IMF and the World Bank is based at measuring poverty at $ 1.25 a day. When measured at between $5 and $10 a day, the number of people living under $10 a day increased worldwide by 25%. Today 4.3 billion people – nearly two-third of the global population – live on less than $5 a day.

The Oxfam figure that the richest 1% now has more wealth than the rest of the world’s population combined as been widely published and discussed (see here). In fact, this figure is still off. Given that the rich hide so much of their wealth in tax havens and secrecy jurisdictions, it is impossible to know how much they really have. Recent estimates suggest that up to $32tn is stored away in tax havens – around one sixth of the world’s total private wealth. The Oxfam figure therefore underestimates global wealth inequality.

What about income inequality? Many experts, Branko Milanovic among them, argue that while inequality is getting worse within countries, on a global scale, there is actually convergence (see here). Let’s first look at the level of individuals. Income inequality is still most often measured by using the Gini index. This index provides a number between 0 (total equality) and 1 (total inequality). According to Milanovic, the global Gini index decreased from 0.72 in 1988 to 0.71 in 2008. But the Gini is a very inadequate measure as it only captures relative change. If you are rich and I am poor and our incomes increase at the same rate, the Gini index measuring inequality between us does not change, even though the absolute inequality between us rises. If I earn € 10.000 and you earn € 100.000 and we both double our income, the Gini does not change, although the income gap between us increased from € 90.000 to € 180.000. If, as Hickel explains, we use the absolute Gini there is no decrease of global inequality (a pathetic 0.01% in 20 years). Instead there is a real explosion of inequality: the global absolute Gini rose from 0.57 in 1988 to 0.72 in 2005 (see here).

Contrary to convergence theory that holds that because poor countries grow at a faster rate than rich countries, over time the gap between the two will diminish, inequality between poor and rich countries is also widening. In terms of real income per capita, in 1960 people living in the world’s richest country were on average 33 times richer than people living in the poorest country. By 2000, after neoliberal globalisation had run its course, they were 134 times richer. This is not counting the extremes – small oil-rich kingdoms in the Middle East or tiny offshore tax havens. Since 1960, the gap in terms of GDP per capita between the USA with Latin America grew by 206%, the gap with sub-Saharan Africa grew by 207%, and the gap with South Asia grew by 196% (see here).

  1. The ‘populist’ rebellion and global risks

What does the rise of global inequality have to do with the Brexit? As Vincent Bevins wrote in the Los Angeles Times, ‘both Brexit and Trumpism are the very, very wrong answers to legitimate questions that urban elites have refused to ask for 30 years (…) (S)ince the 1980s the elites in rich countries have overplayed their hand, taking all the gains for themselves and just covering their ears when anyone else talks’ (see here).

In an interview with the New Statesman, the political philosopher Michael Sandel said that the dynamics driving the pro-Brexit sentiment were now dominant throughout the West:

‘A large constituency of working-class voters feel that not only has the economy left them behind, but (…) (also) that the sources of their dignity, the dignity of labor, have been eroded and mocked by developments with globalization, the rise of finance, the attention that is lavished by parties across the political spectrum on economic and financial elites, the technocratic emphasis of the established political parties. (…) After the market-venerating radicalism of Reagan and Thatcher, the center left managed to regain political office but failed to re-imagine the mission and purpose of social democracy, which ­became empty and obsolete.’

And in the Guardian, Gary Younge denounced ‘a section of the London-based commentariat (that) anthropologized the British working class as though they were a lesser evolved breed from distant parts, all too often portraying them as bigots who did not know what was good for them’ (see here and here).

These quotes quite nicely encapsulate the historical situation that we find ourselves in. Neoliberal and austerian policies have never made sense and have been debunked a long time ago, but now they also have been delegitimized. The elites have lost credibility, political legitimacy and the ability to dictate outcomes. What the elites have shown is complete policy failure, nothing but a series of economically catastrophic and devastating failures everywhere. Clearly, Europe needs to put its house in order. The macroeconomic imbalances need to be addressed, one way or another. But this is not enough. When, for example, the World Bank predicts (and that was in 2014) that up to 30% of all agricultural land in Africa risks disappearing by 2030, we better start preparing for it.  Compared to such enormous challenges, a Brexit has no real significance. If Lebanon, a country the size of Devon and Cornwall together (smaller than Wales), is capable of housing 2.000.000 refugees, while Britain is panicking over a ‘migrant crisis’ and concedes, apparently with great trouble, to accept (not house!) 20.000 people by 2020, the future does indeed looks bleak. It is just a matter of fact that some countries are running out of water or food or both and that there is increasing risk for ethnic strife, violent conflict and war. Does Europe have a plan? Do any of the member states? We are even too afraid to think about it. Neoliberalism has to be rolled back on a global scale and this cannot happen without a fight that is truly global in nature. The whole model of global development has to change. This sounds absolutely formidable, but it will not be possible to bring back order into the world without addressing trade and development, financialisation, militarisation, human rights, global inequality and climate change (see here).

The Global Risks Report 2016 details a worldwide rise in catastrophic events, everything from involuntary migration to natural disasters. It is all too true that when such crises occur, a scapegoat needs to be found and most of the time they are immigrants and minorities. In a article published yesterday, Simon Oxenham has something very interesting to say about that: as we all know, immigration has an effect on right-wing views, but which effect (see here)? Research shows that there is a negative correlation: in the places where immigration is the highest, support for right-wing parties is lowest. It is the perception of immigration levels in a local area, rather than the actual change in numbers, that is linked to votes for right-wing parties. This is not new. During the Dreyfus affair, antisemitic rage in France was highest in regions where there were no Jews. Thomas Pettigrew from the University of California explains the solution: ‘all that’s needed for greater understanding between groups is contact’ (see here).

Another psychological explanation is that the leave campaigns capitalised on a person’s fundamental need for autonomy. This, at least, is the opinion of psychologist Paul Redford of the University of the West of England in Bristol. Leave voters typically have less wealth and power, so their vote to leave the EU may have been an attempt to increase their scope for self-determination. I continue to find it absolutely amazing that some commentators continue to evaluate the result of the referendum as a victory for the working class and the poor. If the Brexit is such a victory for poor people, why are Marine Le Pen, Frauke  Petry, Geert Wilders and, indeed, Donald Trump laughing so hard? Is this because they are wrong? No, it is because these demagogues need those strata to vote for them against their own interests.

Last Tuesday, in the midst of the Brexit chaos, the UK government released figures that reveal that the number of children living in poverty in the UK increased by 200,000 over the past year to 3.9 million (see here). 66% of these children live in working families (up from 64% last year) – this says something about wages in the UK! The report indicates that this trend is set to continue, with predictions suggesting that child poverty will rise by 50% or more by 2020. While some wallow in decadent wealth, half of the children’s population will grow up in poverty and will, as a consequence, be more likely to suffer chronic illness during childhood, there will be more disabilities and lower educational attainment. Children living in low-income households are nearly three times as like to suffer mental health problems as their affluent peers. Young adults who have lived in poverty as children are significantly more likely to earn lower wages or be unemployed, while men are more likely to spend time in prison and women face a higher risk of becoming lone parents.

The economic costs of poverty are massive: in 2013 a report estimated that child poverty costs the UK £29 billion each year (see here). To compare, the entire budget for unemployment is £3 billion per year. This shows by how much the Tories have hollowed out the welfare state. This figure is £1 billion less than the taxes that Vodaphone should pay, but refuses to do so. And what did the government do? Incredibly, they fought to scrap income as an indicator of poverty. There has been a complete absence of any policy to addresses the problem. The contrary is true. Their policies have made the problem consistently worse. It is this that needs to change, in the UK, in Europe and everywhere else. It has to be a fully global struggle. As long as we fail in that, the Le Pens of this world will laugh and the elites will be safe.