Is Cultural Insecurity "Trumping" Economics?

Over the past few months, I have started one Brexit post after another only to scrap it after it really didn't go anywhere. I scrapped things because I thought it had too much in common with a lot of my other posts; the 2014 Scottish Referendum, the prospect of Grexit in the summer of 2015, or commentary on monetary relations, or even Canadian institutions like the New West Partnership.

My take on Brexit seemed always to revolve around the same sets of tensions embedded in the neoclassical stages of integration. It may be that I need a fresh new analytical frame through which to look at every thing, but I have to admit the stages of integration are a great jump-off point for a lot of things.

Nevertheless, I scrapped every Brexit draft I wrote. Something was missing. Cultural insecurity. It hit me yesterday in a column by Anne Applebaum of the Washington Post who argued hat what is happening transcends the standard economic arguments put forward by politicians over the last 20 or 30 years to win votes. Indeed, dating at least to the 1992 campaign of Bill Clinton, maximizing the benefits of the post-Cold War shift toward liberal capitalism and liberal democracy has been pivotal to many election platforms. In 1992, the Clinton slogan was "It's the economy, stupid."

Yet, Applebaum is suggesting that "getting rich" may no longer be as appealing as it once was. Indeed, it seems that many people in the United States, and certainly the UK in the wake of the Brexit referendum, are willing to be poorer (as a whole) in exchange for a (false) sense of more control of their destinies. In the case of Brexit, the symbol of sovereign control quickly descended into a xenophobic debate about immigration.

In some respects, these are not new tensions. Indeed, the evident trade off between global economic integration (low tariffs, expanded trade and investment) and sovereign governance dates to the very first forms of human exchange. The modern expression of those tensions first spilled into the streets of Seattle, Washington in November 1999 at a World Trade Organization Ministerial Meeting-- the infamous Battle in Seattle. Scholars too have been no strangers to the modern debate over globalization; notably, Dani Rodrik's very influential 1997 book Has Globalization Gone Too Far? And, of course, perhaps no one has captured and popularized both the tensions and social upheaval associated with globalization better than Thomas Friedman of the New York Times with his best-selling 1999 book, The Lexus and the Olive Tree.

Culture and Governance

What Applebaum is suggesting is that forgotten in all of these tensions is the importance of a kind of cultural insecurity that has not typically been a part of the debate over globalization's tensions. The learned press as well as academic research on globalization has mostly focused on the effects of economic integration on the power of the state; in 1996, Susan Strange wrote about the "Retreat of the State," we now often talk about the perforated state, or the hierarchical state. Control over immigration is certainly a facet of state power that many in the Brexit debate focused on. However, the focus on immigration was different than the stock, anti-Brussels complaints about subsidies or regulatory burdens.

In many ways, the modern state has been trying to thread several needles at the same time; pursue the broadly based benefits of liberalizing factors of production, including labor mobility, while trying to "compensate" or purchase social license for that same liberalization, often while the terms of integration place limits on the state's ability to do so; subsidies, public expenditures, pooled sovereignty over a range of policies such as immigration.

Less explicitly considered in this context have been the implications of identity and culture resulting from an increasingly global economy. As I noted above, and elsewhere in this blog, xenophobia has been a big part of the history of human trading relations. In a sense, contact with foreigners (immigration), has always been a part of the debate swirling around human exchange.

Yet, for the first time in the postwar era, the state's ability to "purchase" social license to pursue additional liberalization, including additional labor mobility, no longer seems adequate. For most of the postwar period, getting rich was important enough that the societal heterogeneity that inherently came with more advanced levels of global integration wasn't a big problem.

Yet, recent debates have conflated the normal adjustment costs associated with economic liberalization with xenophobic debates over immigration. It may be that some people are willing to be poorer in exchange for the perception of a higher degree of social homogeneity. Some of the fault rests with government.

 What is happening to labor forces in the United States and other rich countries (Western Europe) is actually a world-wide phenomena; those with the skill sets to compete in a global economy are doing quite well (Southeastern England unsurprisingly voted "Remain"), while those without the requisite skill sets are being left behind-- quite badly, in fact. Indeed, in my last blog post, I wrote about how of the elusiveness of the American Dream is fueling the 2016 presidential campaign.

We have put off a sensible debate about the long-term development of skill-sets that could be competitive in an integrated global economy that was more cosmopolitan-- possibly for far too long. Hence, many workers displaced by the adjustment costs of a global economy begin looking for scapegoats. Immigrants, many of whom have in-demand skill-sets, or images of refugees like the one above, become scapegoats for long-term, structural deficiencies in the way countries help their labor forces to remain competitive.

The Great Unravelling?

There are also those who believe globalization is an inevitable process, that large multinationals, large financial institutions, and the magnetic power of global cities are driving everything. For some, like Bernie Sanders or Elizabeth Warren, the deck is stacked against the "little guy" trying to eke out a living. A national referendum, they might say, cannot change larger, transnational forces shaping (eviscerating) the nation state. The state is a shell of what it used to be and is hopelessly outgunned by multinationals, supply chains, and the financialization of global commerce.

The Telegraph, November 26, 2011

I disagree with this view and am deeply worried about the rise of economic and political nationalism we see in Brexit, the rise of the far-right in Europe generally, the Grexit debate, and the alarming success of Donald Trump in the United States. Indeed, to put it in baseball terms, we may be in the 3rd or 4th inning of the unraveling of the The European Project  (the debt crisis and the threat of Grexit being the 1st and 2nd) as well the breakup of the UK itself. While we may be in the early innings of the game, I fear where we'll be by the 7th inning stretch.

Anyone that thinks the prosperity generated by the global economy is inevitable would do well to revisit a little history; specifically the interwar years. The degree of global political and economic integration we now term "globalization" can quickly be destroyed. Moreover, once destroyed, it takes a very long time to rebuild. As Joseph Nye and John Donahue wrote in 2000,

By one basic measure of trade, exports or imports of merchandise as a fraction of total output, it too more than 25 years after the end of World War II before the United States around 1970 reached the same level of globalization it had experienced on the eve of World War I.

This fraction continued to increase rapidly between 1970 and 1997-- reaching about 9 percent today, still far lower than that in Britain in the late 19th and early 20th centuries. By other measures, some pertaining to the freedom of factor movements, the world even by the turn of the millennium was no more integrated than that of the preceding turn of the century.

Beggar-Thy-Neighbor Revisited?

The real fear here is that this is a movie we've seen before; economic and political nationalism have too frequently dovetailed with armed conflict. Better to have integrated markets, the free flow of goods, services... and people, dovetail with peace. This philosophy, buoyed by a plethora of rules-based institutions, has helped keep the peace since 1945.

In the aftermath of the 2008 Financial Crisis, there was considerable anxiety over prospects for growing protectionism in the global economy. It's a powerful rationale, but one that is ultimately self-defeating. As depicted in the cartoon to the leftt (circa 1922),  every protectionist measure put in place to defend your own nation's economic prospects is being countered by a measure put in place by one of your trading partners.

 Yet, what appears to be happening in the Brexit and U.S. presidential campaigns is not your traditional debate over degrees of economic nationalism in which appeals to one's economic bottom-lines could more effectively be marshaled.

Culture and identity are deeply emotional topics. Sadly, they are also topics some in our contemporary political leadership are manipulating to worrying effect.