Globalization's angst and the Brexit vote

This article originally appeared in Yale Global Online on June 28. It was written by Distinguished Professor Farok Contractor who teaches international business at Rutgers Business School. His areas of expertise include Asian business, foreign direct investment and government policies toward foreign investment.

More truth-telling is needed in a complex world where the disgruntled try to cherry-pick among regulations, globalization.

The action of 17.4 million voters from a small island on the western edge of the Eurasian landmass has sent shock waves to the world. The message contained in the decision to leave the European Union resonates with a lot of people in other countries. More than specific concerns of the British people about the European Union, the vote highlighted growing worldwide anxiety over the impact of globalization. A segment of the public in Europe and the United States seem united by their common concerns over integration.

Humanity is anxious about globalization and increased trade, immigration, perceived threat of job losses and slight erosion of sovereignty when nations sign treaties or join economic blocs. And behind globalization is the deeper issue of each individual's sense of identity and place in the world.

"Who am I?" is a question that has worried human beings from the dawn of history, but awareness intensified in the 21st century with mass media images of factories rusting and abandoned because of imports, millions of refugees on the march, killers with automatic weapons, and politicians exploiting anxieties. Problems in every part of the world penetrate the consciousness of voters in other countries.

"Who am I?" was a question once answered by most of humankind by referring to families, villages or small towns, spiritual leaders – a cultural cocoon within a radius of no more than 100 kilometers. Even today, English accents in the United Kingdom change every 25 miles. The majority of Britons rarely see or interact with immigrants, most of whom are concentrated in major cities like London or Bristol. Both cities voted to remain in the EU with decisive majorities. The foreign-born population comprises 12 percent of the UK, 4.6 percent of which were born in other EU nations. Likewise, most Hindus, which make up 81 percent of India's population, who vote for Hindu-first parties describing Muslims as a threat, have few personal interactions with Muslims or other minorities.

Media firms add to the anxiety. These companies must make profits, and fear sells. Anxiety captures attention, and millions of e-mails and social media posts with no fact-checks or attribution circulate the world. Images of terrorist incidents transfix billions of viewers, creating a false sense of insecurity and xenophobia. Even counting the unusual number of 2,902 deaths during the September 11, 2001, attacks on the World Trade Towers, fatalities from U.S. terrorist incidents from 1995 to 2014 averaged 158 per year. By contrast, more than 35,000 died in auto accidents, 11,000 from firearm assaults, 2,700 from falls, more than 30 from earthquakes and around 25 from lightning strikes in 2013 alone.

People around the world have distorted picture of relative risks and vastly exaggerate the danger from foreigners and immigrants.

Citizens also fear a loss of control and sovereignty. International trade and closer economic ties inevitably mean voluntarily giving up a smidgen of sovereignty. Imports may decrease local jobs and leave behind hulking shells of abandoned factories. What politicians like Boris Johnson, British MP and champion of Brexit, fail to tell voters is that jobs created by Britain's exports and investment abroad create more UK jobs, often with better pay, than the lower-paying jobs destroyed by import competition.

For healthy economies like the United States and the United Kingdom, unemployment in mid-2016 was a mere 5 percent or less – a rate that economists regard as full employment, because the figure includes persons between jobs or traveling to their next assignment. Donald Trump, while criticizing China, never speaks of the hundreds of billions in annual benefits to American customers from less costly goods, or the fact that fruit and vegetable prices could triple without migrant labor. Boris Johnson does not mention how much higher plumbing and other repair bills would be if not for immigrants who have entered these occupations.

True, EU regulations have vexed some British businesses, but their own advanced society imposes safety, environmental and consumer-protection regulations, too. Tellingly, in the Brexit debate the media mainly interviewed small-business owners who grumbled about EU regulations. Executives in larger firms overwhelmingly favored remaining in the EU.

Again, the issues are more psychological than logical. A more complex world has transformed life for many businesses and individuals with more forms, permissions and bureaucratic obstacles.

For healthy economies like the United States and the United Kingdom, unemployment in mid-2016 was a mere 5 percent or less – a rate that economists regard as full employment, because the figure includes persons between jobs or traveling to their next assignment. Donald Trump, while criticizing China, never speaks of the hundreds of billions in annual benefits to American customers from less costly goods, or the fact that fruit and vegetable prices could triple without migrant labor. Boris Johnson does not mention how much higher plumbing and other repair bills would be if not for immigrants who have entered these occupations.

True, EU regulations have vexed some British businesses, but their own advanced society imposes safety, environmental and consumer-protection regulations, too. Tellingly, in the Brexit debate the media mainly interviewed small-business owners who grumbled about EU regulations. Executives in larger firms overwhelmingly favored remaining in the EU.

Again, the issues are more psychological than logical. A more complex world has transformed life for many businesses and individuals with more forms, permissions and bureaucratic obstacles.

Bureaucracy is national, not supra-national. Almost all regulations in the world are imposed by one's own government and not foreign sources. Bureaucracy is often the reaction by governments to demands from their own citizens for safety, ethical rules and fairness in dealings. To attribute loss of economic or individual autonomy to foreign sources is false.

Globalization of trade does mean that a nation "loses some and wins some." In return for a tiny loss of sovereignty as well as more scrutiny, regulation and foreign competition, most nation's consumers and businesses, on average, benefit. The gain for virtually all nations considerably outweighs the pain.

But when we speak of statistical "averages" herein lies the rub. Because the gain and pain are not spread equally over a country's population. Nor are gain and pain equally visible to the public. Most shoppers at Marks & Spencer in the UK or Macy's in the US do not realize that the typical family saves hundreds or thousands per year because poor wretches in Bangladesh or Burundi toil on their behalf at less than 40 cents per hour or that as many as one in six jobs in their country are a result of international business. Such benefits are diffused over many shopping visits and spread throughout a population of 65 million in the UK or 325 million in the U.S.

More visible is the concentrated suffering of a few thousand Tata Steel workers in the UK laid off at Port Talbot – though Tata might still reach a deal to save the plant – or the rusting hulks of factories in Detroit. Lower prices from imports enjoyed by Walmart shoppers are not thrilling for the news media to report while the grief of layoffs is newsworthy. Pain, fear and anxiety sell more advertisements than an abstruse calculation of consumer benefits.

On average, a nation is better off from globalization. But the internal distribution of benefits and costs of the pain and gain are never equitable.

A map of the UK showing which districts voted for Brexit paints a telling picture. In the past 20 years, while all of the UK public has enjoyed lower prices and higher quality from imported goods, with Britons better off on average, most job growth and wealth accumulation has been in large cities such as London or Bristol. The rest of the UK also progressed, but with less vigor. Internal disparities, between cleaned-up metropolitan areas, cosmopolitan elites and the rest of the UK deepened.

No wonder then that the "remain in the EU" vote was concentrated in the wealthy urban centers. The outlying shires envy the metropolises and, ironically, have far fewer foreign-born persons. Nevertheless, the shires are more fearful, less educated and more willing to listen to one-sided arguments from politicians exploiting xenophobia for their own career advantage.

Statistics may deceive. But alas, in the more anxious world created by globalization, by travel and by internet media, outright lies, untruths and phobias can find easier acceptance even in seemingly well-educated populations of advanced nations. The British decision to ignore establishment and expert advice – "enough of experts," a Brexit leader famously said – underlines the danger of information overload when reality appears grim.

The remedy though, as always, is in more truth-telling.

Farok Contractor is a distinguished professor of Management & Global Business at Rutgers Business School.

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