Dr Ashwani Mahajan
World was amazed at decision of Britons to exit (Brexit) from European Union in referendum held in June 2016. Political pandits and economists could not understand the under-current leading to the decision of exit of Britain from European Union. Rather. after the decision, they started saying that Britain will be at loss, post Brexit. And when Pound and British stocks started declining, they are patting their backs for what they have been saying. It is being said that Britain would lose a big chunk of its international trade, as 56 percent of Britain’s trade has been with EU. However, this fear was not one sided, even EU is also in danger, once such an important partner exits from EU. Though, it may take more than 2 years for Britain to actually leave EU, officials of EU, baffled by the decision, have started asking Britain to leave EU at an early date.
What was the Under-Current?
Whether it is election or referendum, there is always an under-current behind its results, which is revealed only after the results. It is being said that though more youth favoured continuation in EU, while aged population generally favoured exit. It might be due to the fact that in the last nearly one decade social security cover for aged population has been eroding. Perhaps, this phenomenon does not completely explain Brexit. We find different regions have voted differently. Scotland, Ireland and London favoured EU, while rest 9 regions voted for Brexit.
A few years back, when Greece was cornered by the lenders (from other parts of EU) and was forced to concede austerity measures, Greeks had almost decided to exit EU; and since then Greeks has been most unhappy from EU. Many other countries including Portugal, Ireland, Spain and Cyprus, who have been facing worst crisis, are also in exit mood.
Poverty on Rise
When walls between various European countries were demolished, ensuring free flow of goods, services, people and capital, and European Union was born, for a few decades; these countries didn’t face any major problem. However, major crisis after 2008, had shattered many European countries. Economic activities have come down, stemming GDP growth and increase in unemployment and poverty. Public debts have been on rise and public revenue has been badly hit. This has resulted in austerity measures. This has resulted in cuts in pensions and other social security expenditures.
According to a recently published research, situation of poverty in countries like Greece, Spain, Portugal, Cyprus etc. has been worse than, the countries of erstwhile USSR, at the time of disintegrators. Now European Union is planning to drive 200 lakh people out of poverty; however, poverty has been rising at an unprecedented rate in countries of southern Europe. It is significant that poverty increased, throughout Europe between 2008 and 2011. Thus we can understand that result of Brexit may inspire many European countries to exit EU.
Discontent in US
Republican presidential candidate, Donald Trump, who is known to the outside world for his controversial statements against immigrants and Muslims, has been using discontent amongst Americans due to ever rising inequalities and deteriorating economic conditions to his favour by raising these issues. According to Trump, wrong economic policies have actually been causing unemployment and economic inequalities. Employment opportunities have been vanishing due to cheap imports. This argument of Trump is corroborated by the latest report, according to which 2.4 million jobs were lost in US due to cheap imports from China. Workers could not be adjusted elsewhere, as a result of which their economic condition worsened. Increasing competition and recession have both led near stagnation or a very slow growth in international trade. Federal Reserve is also not having many policy alternatives to help raising investment or consumer demand. US government is also not having any capacity to give further bailout packages.
Earlier, it used to be claimed that only way to sustain growth and increase employment is technological progress. However, technology has ceased to be an engine of growth, as it is reducing employment as jobs are getting transferred abroad. This has been causing inequalities in the distribution of income and wealth. Top 20 percent households cornered 44.3 percent of income in 2000, which increased to 49 percent in 2011. Share of wages in GDP which was 66 percent in 2000 came down to nearly 61 percent 2011. So we can say that richer are getting richer and poor are becoming more poor.
Majority population in Europe is getting poorer. Position in US is no better. Youth unemployment is also reaching dangerous levels. In Greece and Spain, Youth unemployment is nearly 50 percent, in Italy it is 43 percent, in Cyprus it is 34 percent. In England it is no less than 16 percent. Health care in US is becoming increasing difficult. Increasing dependence of youth on unemployment allowances on the one hand and depleting exchequer on the other, both have been giving huge challenge to policy makers. People in most part of Europe are in deep trouble and wish to regain their past glory. However, Governments of these countries are still favoring free trade and dominance of companies. Now democracy is providing answer to their miseries. First Brexit, and now Donald Trump’s endeavour to fight out menace of globalisation, may turn out to be path breakers. Here it is significant to note, Donald Trump’s statement that Americanization, not globalization, will be our new credo. Today, when globalisation is failing all over the globe and people are feeling suffocated in the same, it is unfortunate that our policy makers are still busy appreciating globalisation and are obsessed with the idea of foreign capital, imports, foreign technology and foreign thinking. Now it is time that we take stock of impact of globalisation on world economy and common people and make suitable changes in the economic policies for the country.
(The author is Associate Professor, PGDAV College, University of Delhi)
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