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Globalization’s Political Fault Lines

The UK’s narrow vote to leave the EU is the proverbial canary in the coalmine, signaling a broad populist/nationalist backlash – at least in advanced economies – against globalization. But growing anti-establishment sentiment does not necessarily spell doom for a process that continues to yield net benefits for the global economy.

NEW YORK – The United Kingdom’s narrow vote to leave the European Union had specific British causes. And yet it is also the proverbial canary in the coalmine, signaling a broad populist/nationalist backlash – at least in advanced economies – against globalization, free trade, offshoring, labor migration, market-oriented policies, supranational authorities, and even technological change.

All of these trends reduce wages and employment for low-skill workers in labor-scarce and capital-rich advanced economies, and raise them in labor-abundant emerging economies. Consumers in advanced economies benefit from the reduction in prices of traded goods; but low and even some medium-skill workers lose income as their equilibrium wages fall and their jobs are threatened.

In the “Brexit” vote, the fault lines were clear: rich versus poor, gainers versus losers from trade/globalization, skilled versus unskilled, educated versus less educated, young versus old, urban versus rural, and diverse versus more homogenous communities. The same fault lines are appearing in other advanced economies, including the United States and continental Europe.

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