Jul 7th 2016

The Brexit Alarm

by Adair Turner

 

Adair Turner, Chair of the Energy Transitions Commission, was Chair of the UK Financial Services Authority from 2008 to 2013. He is the author of many books, including Between Debt and the Devil.



LONDON – As a passionate European, the outcome of Britain’s referendum on European Union membership horrified me. It will almost certainly result in our exit from the EU. But I have feared for many years that large-scale immigration to the UK would produce a harmful populist response.

Global elites must now learn and act upon the crucial lesson of “Brexit.” Contrary to glib assumptions, globalization of capital, trade, and migration flows is not “good for everyone.” If we do not address its adverse effects, Brexit will not be the last – or the worst – consequence.

Net immigration to Britain was close to zero in the early 1990s. It began to increase later that decade, and grew rapidly after eight formerly communist countries joined the EU in 2004, when Britain – unlike, for instance, France and Germany – waived its right to impose a seven-year delay before allowing free movement of people from the new member states. Last year, net immigration was 333,000, and the total population grew by around 500,000. Credible forecasts suggest that the UK’s population, now 64 million, could be above 80 million by mid-century.

Migration undoubtedly brings many benefits – London is a wonderful city partly because it is a cosmopolitan melting pot of diverse cultures. But, as the House of Lords Economic Affairs Committee, of which I was then a member, argued as early as 2008, large-scale immigration has brought significant disadvantages for many people.

The precise impact of migration on wages is hotly debated among economists, but no economy can face a sudden surge in labor supply without some adverse consequences for at least some groups of “native” workers. A sudden surge in population, often concentrated in particular locations, will also produce overcrowding in key public services, such as education and health care, unless offset by a well-planned and well-financed surge in public investment. In the UK, that investment did not occur.

In England – which vies with the Netherlands for the highest population density in Europe – many fear that further population growth will mean unwelcome pressure on much-loved countryside. This has provoked intense local opposition to major new infrastructure development, with endless delay, increased cost, or lasting resentment the inevitable result.

For all these reasons, increased migration to the UK was bound to produce a political reaction. That reaction partly reflected xenophobia, fanned by deliberate exaggeration: “Leave” campaigners, for example, mendaciously suggested that Turkey, with its large and rapidly expanding population, would soon enter the EU without Britain’s consent. But the lies were effective because they built on a kernel of truth, and because refusing to recognize that truth only intensified the populist reaction.

Indeed, faced with emerging concerns about migration, establishment politicians and academic economists responded either by dismissing the concerns as closet racism, or by denying that adverse consequences even existed; either way, millions of citizens were apparently suffering from false consciousness. But if at least some people are suffering from real problems, lectures about the benefits of migration will only enrage them more.

The failure of the UK’s “Remain” campaign to rebut concerns about migration reflects the wider inability of the global elite to convince people that the free movement of capital, goods, and people is in general good for everyone. In fact, it isn’t, and good economics tells us why.

According to economic theory, each of these three freedoms can increase the size of the global pie. But economic theory also tells us that there will inevitably be losers as well as winners, so that liberalization and globalization will be good for everyone only if the winners compensate the losers. Around the world, there has been precious little compensation.

In the US, the main future challenge probably will be the impact of trade, rather than migration, because the era of large-scale influxes from Latin America may soon come to an end, as declining fertility rates stabilize populations throughout the region. Paradoxically, US presidential candidate Donald Trump has managed to excite support for his absurd plan to build a wall on the border with Mexico at the very moment when net migration from Mexico is turning negative.

But his argument that many US workers have suffered – and could suffer still more – from free trade has struck a chord, because it is partly true. Unless the US political system can produce effective policy responses to this reality, the populist rejection of free trade, combined with antagonism toward immigrants, seems likely to grow stronger.

In Europe, by contrast, the huge challenge in the future will be migration, and not so much within the EU as from outside. According to the United Nations, Africa’s population could increase from 1.2 billion today to more than 4.3 billion by 2100. Unless this increase is accompanied by rising prosperity and rapidly expanding job opportunities, large and continuous migration flows across the Mediterranean will become inevitable.

The whole of Europe therefore faces two enormous challenges: helping to foster economic development in Africa and the Middle East, and coping as best as possible with the significant migration flows which are bound to occur, with significant adverse consequences for some citizens.

Addressing these challenges requires a coordinated European response, and I greatly regret that Britain will now play a much-reduced role in shaping common European endeavors. If any good can come from this depressing result, it is that a wake-up call has been heard, alerting us to the downsides of globalization. Unless those downsides are acknowledged and addressed, the backlash that fueled Brexit will continue to grow.



Copyright: Project Syndicate, 2016.
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