The Meaning of Brexit by Jeffrey Sachs

The Meaning of Brexit
JEFFREY SACHS

PROJECT SYNDICATE
JUNE 25, 2016


NEW YORK – The Brexit vote was a triple protest: against surging immigration, City of London bankers, and European Union institutions, in that order. It will have major consequences. Donald Trump’s campaign for the US presidency will receive a huge boost, as will other anti-immigrant populist politicians. Moreover, leaving the EU will wound the British economy, and could well push Scotland to leave the United Kingdom – to say nothing of Brexit’s ramifications for the future of European integration.

Brexit is thus a watershed event that signals the need for a new kind of globalization, one that could be far superior to the status quo that was rejected at the British polls.

At its core, Brexit reflects a pervasive phenomenon in the high-income world: rising support for populist parties campaigning for a clampdown on immigration. Roughly half the population in Europe and the United States, generally working-class voters, believes that immigration is out of control, posing a threat to public order and cultural norms.

In the middle of the Brexit campaign in May, it was reported that the UK had net immigration of 333,000 persons in 2015, more than triple the government’s previously announced target of 100,000. That news came on top of the Syrian refugee crisis, terrorist attacks by Syrian migrants and disaffected children of earlier immigrants, and highly publicized reports of assaults on women and girls by migrants in Germany and elsewhere.

In the US, Trump backers similarly rail against the country’s estimated 11 million undocumented residents, mainly Hispanic, who overwhelmingly live peaceful and productive lives, but without proper visas or work permits. For many Trump supporters, the crucial fact about the recent attack in Orlando is that the perpetrator was the son of Muslim immigrants from Afghanistan and acted in the name of anti-American sentiment (though committing mass murder with automatic weapons is, alas, all too American).

Warnings that Brexit would lower income levels were either dismissed outright, wrongly, as mere fearmongering, or weighed against the Leavers’ greater interest in border control. A major factor, however, was implicit class warfare. Working-class “Leave” voters reasoned that most or all of the income losses would in any event be borne by the rich, and especially the despised bankers of the City of London.
Americans disdain Wall Street and its greedy and often criminal behavior at least as much as the British working class disdains the City of London. This, too, suggests a campaign advantage for Trump over his opponent in November, Hillary Clinton, whose candidacy is heavily financed by Wall Street. Clinton should take note and distance herself from Wall Street.

In the UK, these two powerful political currents – rejection of immigration and class warfare – were joined by the widespread sentiment that EU institutions are dysfunctional. They surely are. One need only cite the last six years of mismanagement of the Greek crisis by self-serving, shortsighted European politicians. The continuing eurozone turmoil was, understandably, enough to put off millions of UK voters.

The short-run consequences of Brexit are already clear: the pound has plummeted to a 31-year low. In the near term, the City of London will face major uncertainties, job losses, and a collapse of bonuses. Property values in London will cool. The possible longer-run knock-on effects in Europe – including likely Scottish independence; possible Catalonian independence; a breakdown of free movement of people in the EU; a surge in anti-immigrant politics (including the possible election of Trump and France’s Marine Le Pen) – are enormous. Other countries might hold referendums of their own, and some may choose to leave.

In Europe, the call to punish Britain pour encourager les autres – to warn those contemplating the same – is already rising. This is European politics at its stupidest (also very much on display vis-à-vis Greece). The remaining EU should, instead, reflect on its obvious failings and fix them. Punishing Britain – by, say, denying it access to Europe’s single market – would only lead to the continued unraveling of the EU.

So what should be done? I would suggest several measures, both to reduce the risks of catastrophic feedback loops in the short term and to maximize the benefits of reform in the long term.

First, stop the refugee surge by ending the Syrian war immediately. This can be accomplished by ending the CIA-Saudi alliance to overthrow Bashar al-Assad, thereby enabling Assad (with Russian and Iranian backing) to defeat the Islamic State and stabilize Syria (with a similar approach in neighboring Iraq). America’s addiction to regime change (in Afghanistan, Iraq, Libya, and Syria) is the deep cause of Europe’s refugee crisis. End the addiction, and the recent refugees could return home.

Second, stop NATO’s expansion to Ukraine and Georgia. The new Cold War with Russia is another US-contrived blunder with plenty of European naiveté attached. Closing the door on NATO expansion would make it possible to ease tensions and normalize relations with Russia, stabilize Ukraine, and restore focus on the European economy and the European project.

Third, don’t punish Britain. Instead, police national and EU borders to stop illegal migrants. This is not xenophobia, racism, or fanaticism. It is common sense that countries with the world’s most generous social-welfare provisions (Western Europe) must say no to millions (indeed hundreds of millions) of would-be migrants. The same is true for the US.

Fourth, restore a sense of fairness and opportunity for the disaffected working class and those whose livelihoods have been undermined by financial crises and the outsourcing of jobs. This means following the social-democratic ethos of pursuing ample social spending for health, education, training, apprenticeships, and family support, financed by taxing the rich and closing tax havens, which are gutting public revenues and exacerbating economic injustice. It also means finally giving Greece debt relief, thereby ending the long-running eurozone crisis.

Fifth, focus resources, including additional aid, on economic development, rather than war, in low-income countries. Uncontrolled migration from today’s poor and conflict-ridden regions will become overwhelming, regardless of migration policies, if climate change, extreme poverty, and lack of skills and education undermine the development potential of Africa, Central America and the Caribbean, the Middle East, and Central Asia.

All of this underscores the need to shift from a strategy of war to one of sustainable development, especially by the US and Europe. Walls and fences won’t stop millions of migrants fleeing violence, extreme poverty, hunger, disease, droughts, floods, and other ills. Only global cooperation can do that.