Opinion: The tide is turning

Source: Branko Milanovic

For the convenience of subscribers, here's my weekend column in which I say Donald Trump's implosion does not mean the anti-globalisation backlash has ended - but rather it has only just begun, and New Zealand should adapt and ensure we don't catch the worst of the Trumpism bug.

In just over a week's time Donald Trump is expected to be trounced in the US Presidential election, but that will not be end of the anti-globalisation backlash that is now sweeping the globe.

Trump's own personal shortcomings look likely to hand Hillary Clinton the top job, but the revolt he represents is not over and is just a symptom of a similar movements and reactions all around the developed world against a 40-year-long trend of globalisation of the movement of goods, services, people and capital.

Italian Prime Minister Matteo Renzi could lose a referendum on December 4 that many Italians see as a vote of confidence in the European version of globalisation. Marine Le Pen, who wants to shut down migration and pull Europe out of the euro single currency zone, is a genuine threat to become the French President by the middle of next year. Germany is set to hold Federal elections in October next year and Chancellor Angela Merkel could lose her job because of the rise of an anti-migration and globalisation party called Alternative fur Deutschland. New British Prime Minister Theresa May is set to trigger a two-year countdown to a 'hard' Brexit from the European Union by March next year.

Just this week, a bunch of dairy farmers in Belgium managed to kick up enough of a stink to torpedo a new trade deal between the European Union and Canada. The prospects of a meaningful trade deal between New Zealand and Europe that would allow more dairy exports into Europe are receding by the day. A TPP-style deal between Europe and the United States is also stalled because of growing opposition in Europe, not to mention the United States. And even if Mrs Clinton wins next week, few expect she will be able to revive the TPP.

There is also a growing clamour in Europe, Britain and Australia to control and reduce migration flows, along with the imposition of various taxes and bans on capital movements, particularly into housing markets in the likes of London, Vancouver, Sydney and Melbourne.

There are good reasons why so many workers in the developed world want to stop the 40-year project to free up movements of goods, services, people and capital. There is no doubt that these freer movements make economies in particular and the world in general richer on average. The key is the 'on average'.

Economists and income researchers have crunched the numbers and found that globalisation has made a lot more people richer in general, but some have missed out, and some have benefited enormously. Hundreds of millions of people have been lifted out of poverty in Asia and China in particular. That is a great thing. But millions of workers in the rust belts and factory towns of Europe and America have seen their well-paid jobs exported and have not been compensated or retrained to soften the blow. Many blame migrants and trade deals for their woes, but it is their own Governments' failure to provide income support, re-education and social support that is to blame. There has also been a failure to redistribute the benefits of the gains in developed countries from the ultra-wealthy to poorer.

Former World Bank economist Branko Milanovic has demonstrated that more than half of the absolute gains in income over the 20 years to 2008 went to the richest 5% of the global population. That has worsened since the Global Financial Crisis (GFC) as the richest 5% have benefited most from booms in property, bond and stock markets since then because of extremely low-to-negative official interest rates. Bank managers and shareholders were also protected by Governments who used taxpayers money in general to bail out the banks during the GFC.

Understandably, the Trumpites and Brexiteers are revolting and lashing out at any proposals and leaders who want more of the same policies that have not helped them, and in some cases hurt them. That is not going away, even if throwing out the baby of global trade benefits with the bathwater of this backlash actually hurts the poorest workers even more by slowing economic growth and increasing the costs of imports.

New Zealand is in a healthier position, but faces some of the same stresses and cannot ignore the lessons of the last 30-40 years. The 'easy' trade deals of the last 20 years will be much harder to find and there is a risk that a full-scale backlash hurts us too by slowing global growth and forcing many New Zealanders home, further inflating our own population pressures from migration. New Zealand should be doing everything it can to ensure the losers from globalisation are compensated and retrained, while ensuring the biggest beneficiaries share some of the bonanza around. That will prevent the worst of Trumpism migrating here.

Trump may be about to exit stage left, but anti-globalisation is here to stay.