The Brexit verdict has less to do with leaving the EU and is more a condemnation of the excesses of capitalist democracies.
Most commentaries on the Brexit verdict focus primarily on the severity of its economic and political impact. There is an almost unanimous disbelief that the unthinkable has happened. As to why it happened, the consensus prognosis laments that the people who voted to ‘leave’ were either misinformed, under-informed or ignorant.
This could well be construed as one more confirmation of the new world we live in – a government of the elite, by the elite and for the elite – in the so-called democracies. The aftermath of the 2008 financial crisis has led to increasing inequality and poverty all over the world. The people feel let down by their governments. Brexit and the support for Donald Trump in the US are two of the stark manifestations of these frustrations.
While socialism was discarded long ago, capitalism has also failed to bring about the promised prosperity for the masses. Mere tinkering with policy frameworks does not work. A transformational shift is necessary in the way that nations govern and global institutions function.
The masses are raising fundamental questions such as how to bring about a transition to ‘democracy as it should be’ for the people, and not merely of the people and by the people. It is in the quest for these answers that the people of Great Britain have sought a complete departure from whatever has been going on in the Whitehall and Brussels. One would not be entirely wrong if one was to say that the verdict has less to do with leaving or remaining in EU and is more a condemnation of the excesses of capitalist democracies. It is more a clarion call to wake up the ruling elites from their political complacency.
A Credit Suisse study reveals that the wealth owned by the bottom half of the population has fallen by a trillion dollars in the past five years – a drop of 38% – while the richest 1% in the world now own more wealth than the rest of the world put together. In his book The Price of Inequality, Joseph Stiglitz warned in 2013 about “the irony that the economists and policy-framers never look upon economic inequality as a problem. For them, poverty is a problem; unemployment is a problem; slow growth is a problem. But not economic inequality. Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable in the long term”. This has now come true.
The financial sector in London contributes close to 10% of the British economy; the city is home to 48 billionaires. When the masses learn that the super-rich pay even lower taxes than the middle class, the populist anger is not out of place. The British patronage of the tax-haven status of the three crown dependencies – Guernsey, the Isle of Man and Jersey – as well as the UK Treasury’s sixteen overseas territories add to the dismay. These territories include the Cayman Islands in the Caribbean Sea, which has become the fifth largest banking centre in the world after London, New York, Tokyo and Zurich. Over 100,000 corporations are registered there, with gross assets of around $ 1.5 trillion.
The British who voted for the Brexit represent the victims of the new global disorder. They represent the global majority that is not a part of the mainstream and they are no longer willing to accept inequality as destiny. A vast majority of the people in the world today are increasingly discovering a common bond that extends to all sections of societies, except the elite, and is fuelled by disgust towards continuation of pro-rich policies and rampant corruption everywhere, be it politics, business or sports. They are being united by new forces at play: knowledge-based civil society, instant connectivity and the youth apprehensive about their future.
A significant portion of the US Federal Reserve and other central banks’ easy money, garbed as quantitative easing, was diverted to purchases of financial assets, stocks and share buybacks, which resulted in a further increase in the prices of those assets. Since the wealthy people own most of these assets, they got even wealthier. A Credit Suisse study of 46 major countries found that wealth inequality was on the rise in only 12 of those countries before 2007; the number jumped to 35 countries by 2014.
The good news is that we have a window of opportunity where responsible, conscientious leadership can still prevent the onset of similar events in other parts of the world. Political and business leaders need to accept the new ground realities, not as an act of philanthropy, but for sheer survival. The need of the moment is perhaps to measure progress by the GDP growth of the bottom 80% of the population. Changing course is admittedly difficult, but there is no alternative. If we do not, we may be overwhelmed by even more serious, uncontrollable transformational forces.
Ravi Chaudhry is chairman of CeNext Consulting Group and author of Quest for Exceptional Leadership: Mirage to Reality.