British Prime Minister David Cameron has announced his resignation after voters unexpectedly plumped in favour of the country’s exit from the European Union. It now remains to be seen what kind of new arrangement Britain will work out with the EU, post Brexit. Cameron has said he will stay on until the Conservative party appoints a new leader in its forthcoming conference in October. Until then, he will act an interim prime minister of sorts, making it clear in his address to the nation that only a newly appointed prime minister will start negotiations with the EU under Article 50 on the process of withdrawal. Needless to say, the Brexit vote has shocked the world. Global financial markets, including in India, are in turmoil and will remain so for some time until the cost implications of the event are fully digested. More than that, politically, the Brexit vote could prove to be a watershed development for not just the UK but the world.
The decision to exit the EU is momentous because a challenge to the process of globalisation has come from within a nation that historically had been part of the Western consensus in favour of free trade and global economic integration. Politically, this is a backlash against the process of globalisation – the Eurozone being part of that process – that is perceived by the people of Britain as not having benefited the poor and the working classes. There is a feeling across the western world, including in America, that globalisation and free trade has boosted only corporate profits and has left working class wages stagnant at levels seen 15 years ago. Reputed economist Thomas Piketty has also stressed this point in recent years.
No wonder then that the initial reaction of Nigel Farage – leader of the Brexit movement – to the result was to say it was a vote against big business, merchant bankers and fatcats. This longing to act against the financial and economic elite now runs through much of Europe and America, and is even spreading to the developing economies.
The biggest challenge for the proponents of globalisation – borderless movement of merchandise, investment, services and labour — is to politically convince their domestic constituencies that the welfare gains of globalisation will predominantly reach the poorer sections of the people and not just add to corporate bottom-lines.
If one looks at the reality on the ground, it is not necessary that the British working classes have lost out only because of being part of the EU arrangement and allowing some three million EU immigrants to live in Britain. Brexit leaders received huge support from areas in Britain that saw a big decline in the shipping and steel industries; workers in these areas bought into Farage’s emotional campaign of recovering British sovereignty and pride. But will a full exit from the EU revive steel and shipping in Britain? One seriously doubts if this can happen because much of Europe has become uncompetitive in the production of steel and other industrial products due to the high cost of skilled and unskilled labour. Britain can revive these industries only by turning into a sort of autarky, which is near impossible in today’s interdependent world. There are hardly any autarkic nations today, except Cuba and North Korea.
Although the extreme left and the right in Britain have both welcomed pulling out of the EU, the new prime minister will have no option but to engage with the EU in much more pragmatic terms than what extreme arguments coming from the far right or left would have us believe.
True, there is a lot of merit in the argument that the current framework of globalisation, and various arrangements of free trade and investments have not adequately benefited the working classes and given much greater advantage to big businesses. This needs to be corrected drastically. But it cannot be done by throwing the baby out with the bath water — totally reversing all current arrangements. Experts predict that a complete disengagement from the EU by the UK would certainly throw the British economy into a severe recession and close to a million jobs will be lost. This will be the immediate impact in the short to medium term as the socio-economic fabric will be torn asunder. For instance what will happen to the five million people from Britain and the EU who have work visas in each others’ territory? It will be like a surgery – taking an ailing patient closer to death. The new prime minister will most likely approach this very cautiously and soft-land the disengagement, and reach some midway solution with the EU to begin with. The UK just cannot afford a hard landing at this stage.
What happens between Britain and EU will have huge implications for India because the benefit of low cost production across the world has been captured by economies like India and China. If nationalist and protectionist sentiments in the West result in a reversal of the ongoing process of production shifting to more efficient Asian economies it will be a cause for future worry.