By Bernard Hickey
All over the developed world the masses are revolting and not in a friendly or productive way.
The Brexit vote was clearly a howl of protest by often poorer and older and less educated Englanders who felt insecure, impoverished and alienated from the richer Londoners preaching about the benefits of globalisation.
These Brexiteers essentially said they'd had enough of being told that the free movement of goods, services and capital across borders would make everyone richer and happier in the long run. After 30 years of removing trade barriers and welcoming in migrants, they finally said 'enough' when the powers-that-be told them one more time that remaining open and connected to the markets of the world was good for everyone.
Donald Trump's supporters are doing exactly the same and there are clones of Trump and Brexit campaign leader Nigel Farage all over the developed world, ranging from Marine Le Pen in France to Geert Wilders in the Netherlands and Pauline Hanson in Australia. Winston Peters is in many ways our version of the same populist phenomenon, campaigning against globalisation and migration.
On the face of it, they're wrong. Globalisation has made most of the world richer for most of the time and there's no denying the wealth of much our new world of cheap imported goods, free online services and easy travel around a vibrant fabric of cultures.
This chart from former World Bank economist Branko Milanovic shows exactly how incomes across the world have fared over the last 20 years, ranging from the poorest on the left to the richest on the right.
You can see the broad bulk of the middle have seen their real incomes rise 20% to 80% over the period from 1988 to 2008. Hundreds of millions of people in China, Eastern Europe and Emerging Asia have been lifted out of poverty and into the middle classes. Those at the very richest end of spectrum in places like China and America have also done well, but even their income growth hasn't been quite as strong as for those around the middle of the spectrum.
But the chart also shows an alarming gap between the 70th and 90th percentiles, which is where the Brexiteers and Trumpites live. These are those workers (often men) on lower to middle incomes from the rust belts of the North of England and the North and Mid-West of America who have seen their real incomes fall. Their comfortable and increasingly prosperous lives of the 1950s, 1960s and 1970s were upended by the dismantling of the Berlin Wall in 1989 and China's accession to the World Trade Organisation in 2001. Salt was rubbed in the wounds by a range of reforms and austerity that chewed away at the fabric of the post-war social safety net of subsidised education, health care and benefits for the sick and unemployed.
Where once a high school education with decent numeracy and literacy was enough to get a decent job to support a family, now it takes a tertiary education and a whole range of skills to earn a comfortable living. Many of those in manufacturing have been cast aside, unable to retrain and forced to work in lower wage and less prestigious occupations. Many more in the likes of Britain and the United States have been forced to pay for University education and expensive healthcare that their older generations received in subsidised form.
The Brexiteers and Trumpites are now revolting, which often means blaming the 'others' -- those in the governing elites and those arriving from other places. It is ugly and counter-productive because the people who will be hurt the most in the resulting political turmoil are the poorest and most marginalised. The irony of the Brexit decision is those poorer areas in the North of England that voted to leave will be the first hurt in any British recession and the first to miss out on European Union subsidies.
The arrival this week of new household wealth figures for New Zealand reinforced that these underlying changes in the global economy that have made many wealthy, but have left others behind over the last 20-30 years. The top 10% of New Zealand households own half of the wealth, while the bottom 40% of households owned 3% of the wealth. The poorest 5% were actually under water because they owed more than than they owned. New Zealand was more unequal than Luxembourg, Britain and Australia in these figures, although not as unequal as the United States or the Netherlands.
John Key and Bill English brushed this off as "nothing out of the ordinary" and in line with what has happened for 30 years around the world. That may be true, but it doesn't provide an answer to the masses in the developed world who are revolting.
At some point, the governing elites of mature and globalised economies like ours will have to come up with a new deal to redistribute some of the bounties of globalisation to stop these revolts. In the dry language of the markets, the costs of allowing middle England, America and New Zealand to miss out will outweigh the benefits of doing nothing.
That new deal will have to involve some sort of redistribution of income and wealth, and the rebuilding of the welfare state. The alternative doesn't bear thinking about. Just imagine how productive and wealthy our economies would be with a President Trump and a Prime Minister Peters. Or worse, if democracy does not survive the resulting stresses.
A version of this article was also published in the Herald on Sunday. It is here with permission.
49 Comments
I would question the "real term" benefit of being middle class. Generally, the middle class pay a larger proportion of their income in tax, due to income threshold have the ability to purchase their own home; however at a greater proportion of their Net Pay compared to those in the Upper bracket. With fast rising house prices many in the so-called middle class will not be in a position to buy their own home.
Yes, many can afford a domestic holiday and their fair share of flat whites; however, with wages relatively flat it's questionable what income threshold now defines middle class?
"the social group between the upper and working classes, including professional and business people and their families."
I think you will find some professional and business people scraping the beggars arse to get by these days, with inflation the only saviour for many.
You are correct about NZFirst, they will become an emerging political player far exceeding their 10-12% of the vote as more and more NZer's become increasingly frustrated by the governments ability to sit firmly on their hands on a wide range of issues.
One thing that Winston advocates is that immigration should be reduced and that NZ should target those who will be more beneficial to NZ. For example reduce the number of ailing parents who can come in on their shirt tails. A by product of this is that there would not be so much strain on the Auckland hospitals and housing market. Would that not be a good thing?
You would not think it a good thing if you were an 'ailing parent' :)
Under the completely mad GDP system now being operated, the more money spent on health treatment, the better it is for the economy. In fact, under the completely mad GDP system now being operated, having people sitting around drinking beer, eating pizzas and watching television is 'good for the economy'.....just as long as they keep consuming.
How do you decide 'who will be more beneficial to NZ'? Those who are most economically active consume the most resources and cause the most pollution.
Those who can contribute to our society - we don't have a rocket industry as such - so we don't import rocket scientists. The country should target professionals that the country actually has a demand and any qualifications are recognised in New Zealand ( no point in having a doctor with a degree from an Egyptian university if it is not recognised in New Zealand).
This article mentions men of lower or middle income being worse off. Sure, the lack of traditional workplaces is a big factor.
But I think that the advent of playstation and other computer games are partly to blame for them not fitting in very well any more. By playing these games they are not outside doing sport and they are also not reading to become literate and to broaden their minds and to give them an interest in hobbies.
Its neutered the male of the species.
This will interest you
http://www.historytoday.com/frank-furedi/media%E2%80%99s-first-moral-pa…
BREXIT was really about immigration. Originally good immigration went to the UK-mainly Poles and boosted the productivity. As time progressed the lazy immigrants turned up and that is the problem. Romanian gypsy camps in Hyde Park sums it up.
Amongst this the Brits became lazy. Not prepared to carry out any jobs that meant getting their hands dirty. You don't see many Brits on a London building site, working in cafe or picking vegetables in the fields of Lincolnshire.
The U.K. has been built on immigration for centuries. It just has to be controlled. The politicians in Brussels are still sticking to their utopian policies and unless they wake up soon to the immigration happening in mainland Europe they will destroy the whole of the EU. There is huge resentment in the whole of Northern Europe-it just doesn't get written in the press as it is not pc to talk about it.
Just look at NZ for prime examples of the same kind of political thinking, Immigration and effects.
We bring in large amounts of temp Island workers along with a very generous 1 year working visa scheme. This enables a lot of very profitable business to pay minimum rates for jobs that traditionally were done by Kiwis. These jobs are still paying the same as they did 25 years ago, hence not attracting the quality local workers that they used to.
I've been trying to understand the Brexit vote and this is my view: Brexit is 95% about immigration.
The flow of people has been mostly from the poorer member countries to the richer. When these people arrive they settle in the poorer area's as that's what they can afford. So for the British people who have grown up and live in these poorer area's, they feel they have really been swamped by immigrants. So it's natural that it is the people from these area's that have voted to leave.
I don't think it's really about economics, jobs or a lack of education as to why poorer people voted to leave. It is just that they are the ones that have experienced the full impact of immigration in their home communities. The rich have far fewer immigrants settling where they are and are somewhat insulated.
London of course is the big exception to this as they voted to stay and have probably the biggest percentage of immigrants. A very young heavy population in London though.
Jamin, you're buying into the media hype. Ask yourself what has happened to the steel mill jobs, the coal mine jobs, the car factory jobs, and all the other jobs. The immigration focus of the media is just a spin. All those jobs I mentioned - they were all exported under the free market economy and globalisation. What little is left is not enough for the Brits, let alone a tide of immigrants who will compete for them.
The same problem exists here, our Government has a job creation program, that they take in immigrants to fill. Few Kiwis benefit.
You were a pariah if you criticized it all just a year or so back, but all I could ever see this globalization march leading to was an eventual one world government, nothing else makes sense, but boy, did people back then, flail around in horror at the mere thought of it. I am no fan of globalization, mainly because of the inevitability of the whole one world government thing, because my next question is "whose particular system would such a globalized world run under", no good assuming it would be good old democracy running the show, some form of totalitarianism would be needed to hold it all together.
Back to the drawing board.
KH - the people did reap the benefits and continue to do so. "In 1820, the vast majority of people lived in extreme poverty and only a tiny elite enjoyed higher standards of living.Economic growth over the last 200 yearscompletely transformed our world, and poverty fell continuously over the last two centuries. This is even more remarkable when we consider that the population increased 7-fold over the same time (which in itself is a consequence of increasing living standards and decreasing mortality – especially of infants and children – around the world).
In a world without economic growth, an increase in the population would result in less and less income for everyone, and a 7-fold increase would have surely resulted in a world in which everyone is extremely poor. Yet, the exact opposite happened. In a time of unprecedented population growth we managed to lift more and more people out of poverty!
Even in 1981 more than 50% of the world population lived in absolute poverty – this is now down to about 14%. This is still a large number of people, but the change is happening incredibly fast. For our present world, the data tells us that poverty is now falling more quickly than ever before in world history. The first of theMillenium Development Goals set by the UN was to halve the population living in absolute poverty between 1990 and 2015. Rapid economic growth meant that this goal – arguably the most important – was achieved (5 years ahead of time) in 2010."
ourworldindata.org.
Profile,
I think you have written a well argued piece, but what it misses is the significant increase in inequality in the developed world over the past 30 years.
This has been well researched and set out all too clearly in the Spirit Level by Wilkinson and Pickett and The Age of Inequality by Stiglitz. The effect has been a significant fall in the standard of living for many in the middle and lower classes and we can see this .in the rise of politicians such as Trump and in the UK referendum.
What is utterly revolting is National sucking up big time to the Chinese. Key, English and Collins seem to think the Chinafication of our country is the best solution. Collins certainly has a very strong Chinese connection. Interesting to note the Chinese dancers on the News last night at the National Party convention. Allowing the Chinese to buy up our country is most likely about to become an election issue - looks like it will be a JKExit soon.
http://www.oravida.com/ourteam.aspx
http://www.radionz.co.nz/news/national/301943/'we're-giving-away-that-w…'
http://www.stuff.co.nz/national/politics/10013696/Judith-Collins-regret…
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11164421
What would also be revolting is the prospect of Judith Collins as Prime Minister!
The company's new downtown Auckland offices in the former Ports of Auckland building on Quay St were opened by Cabinet Minister JUDITH COLLINS, whose husband David Wong-Tung is on the board of Oravida. Mr Shi speaks limited English and is more at home on the golf course, playing daily. He has teed off with Prime Minister JOHN KEY whose portrait hangs in the company's boardroom.
Says it all really!
and they say NZ has low corruption HA, has being going on for years ex ministers and MP's, family placed on boards or given cushy jobs as they have the contacts in wellington to push their agenda.
have a look at the Chinese banks in NZ every one has an ex national leader on the board
the rich immigrants have worked this out, you don't need brown paper bags with cash, you can get the same results another way
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11435185
I've maintained for a long time that NZ does not have the explicit form of corruption seen in some countries, but it's actually a worse, slightly more subtle form of corruption, old boys club 'cronyism'.
how bout Fletchers and the Govt for example. Did the govt undertake a competitive tender to give Fletchers all that work?
now one could reasonably argue that Fletchers might get the work because they are the only company in NZ with capacity. But surely could open it up to Australia?
Bernard, there are a few things points you've made I don't agree with, but quite a good article all the same.
What I don't agree with the most is this:
"At some point, the governing elites of mature and globalised economies like ours will have to come up with a new deal to redistribute some of the bounties of globalisation to stop these revolts..............That new deal will have to involve some sort of redistribution of income and wealth, and the rebuilding of the welfare state"
There is just no way the ruling elite with their inherited farmland and government gifted fishing quota are ever going to voluntarily choose to redistribute some of their money or wealth to the middle class workers. Think about it; if everyone had enough money that they could live their lives as they wished there would be no other way to compel them to get out of bed every morning in the dark and come to work in the factories and farms that increase the wealth of said elite.
It would be akin to giving your slaves freedom and then wondering why nobody is in the field working.
Bernard Hickey conflates unrelated phenomena and tells us 'Globalisation made most of the world richer'. This is not true at all. It was the massive increase in extraction of oil and the distribution of cheap oil that occurred between the late 1970s and the early 2000s that 'made most of the world richer'. By the late 1990s oil was trading at below $20 a barrel, which provided a massive subsidy to most economic activity. In addition, shifting manufacturing to low-wage regions of the world created a short-term boon for consumers, creating an illusion of prosperity.
Extraction of huge quantities of ultra- cheap oil was a one-off phenomenon which started to unravel in the mid-2000s -leading to the first so-called GFC and severe manipulation of interest rates to hold things together- and is about to unravel even more over coming years because oil producers cannot operate at low prices and the globalised economic system cannot operate at high prices. Additionally, the absolute quantity of annual extraction is about to fall globally, despite desperation measures such as fracking and tar sands extraction to prop up supply..
And to cap it all, population growth and increasing levels of pollution that have been a consequence of the world being flooded with cheap oil are in the process of ruining in the Earth.
This has all been studied and understood for decades, and continues to get closed-to-zero attention (again for political reasons).:
'Limits to Growth is on schedule. Collapse likely around 2020'
http://energyskeptic.com/2016/limits-to-growth-is-on-schedule-collapse-…
Never allow the inconvenient facts to interfere with a politically-motivated storyline.
exactly - you can even interpret Brexit as a vote away from Globalisation to protectionism ... as theres less and less to go around, the walls start going up, alliances fall away and conflict kicks in.
But we cant be idealistic about NZ's position either - its going to get ugly, messy and everyones standard of living will plummet.
Afewknowthetruth, here's a great podcast by Kunstler on how civilization has been powered by cheap energy (mainly oil) and that may be coming to an end the next 10-15 years with no viable alternative in sight.
www.kunstler.com/podcast/kunstlercast-278-alice-friedemann-trucks-stop-…
This article acknowledges the problem and then proceeds to defend it, suggesting even, that more of the same is the solution. That the uneducated masses just need to trust the Media, the Politicians, the Wealthy, put aside their 'Fears' and quietly carry on. Maybe the New Deal is the politics of the Nationalist, can you argue the merits of this solution, without bias?
That new deal will have to involve some sort of redistribution of income and wealth, and the rebuilding of the welfare state.
Don't you mean a slot on the treadmill to service the unproductive outrage of continuously compounding IOUs, before they carry off all modern humanity beyond any recognisable social stratification intent?
One of the loudest creaking sounds coming from the markets right now is the global economy straining under a record pile of debt. The world has continued to borrow hand over fist since the financial crisis, adding nearly $60 trillion since 2007 in the process of pushing the worldwide debt load to $200 trillion, or nearly three times the size of the entire global economy. And that figure takes us only to 2014; we don't yet have fresh debt tallies from last year. Read more and more
Bernard, I dont mind that you raise these topics albeit people are becoming vaccinated against them as the themes of your posts are repetitive and converging.
But it undermines your argument when the logic of it doesnt hold at first inspection. Its fair enough to point out that about 20% of the population hasnt done well in terms of growth accumulation. What this doesnt explain is how more than 50% of people voted for "Brexit" so what made up the minds of the the other 30%, Are they lazy racists or some other base rate of malcontents?
As far as I can tell the "leave" vote was more likely over the age of fifty and more likely conservative/liberal party. I am not sure you can characterise them as you have as being uneducated older folk. If you have some other data to support your claim let us know.
The "old" - I prefer to call them experienced and worldwise - did predominantly vote to leave . They know what they were promised at the start has not come to pass. That is precisely why the remainers cabal used "project fear" as they couldn't use the things are going to be better line on the old - as the old has heard it before and knew it to be pure BS.
These Brexiteers essentially said they'd had enough of being told that the free movement of goods... free movement of goods? You have to be joking Bernard? Surely you know the EU is a nightmare of regulation, crony capitalism and life long jobs for the boys based out of London? Bernard knows what's best for the poor, uneducated and old is the exact sort of sneering attitude that cost the remainers the vote.
Dyson sums it up: "Dyson sits on several European committees. “And we’ve never once during 25 years ever got any clause or measure that we wanted into a European directive. Never once have we been able to block the slightest thing.
...These sessions are dominated by very large companies who agree on their approach before the meeting and so vote together as a bloc. And that’s why we never get anywhere. We think that’s anti-competitive practice and we would love to prove it but…” he gives a helpless shrug."
The free movement of people? ...“Sixty per cent of engineering undergraduates at British universities are from outside the EU, and 90 per cent of people doing research in science and engineering at British universities are from outside the EU. And we chuck them out!
So hiring a low-paid barista from Bratislava is no problem, but a prized physicist from Taiwan is a logistical nightmare."
No wonder the EUs share of global GDP has halved since 1980. Time to abandon the sinking ship.
Or take this breadmaker for instance - he is far more keen on some more globalisation and his "poor, uneducated and old" (as you put it) customers will be better off.
"The 50-year-old told The Sun on Sunday: “I think there are great opportunities. For years British bakers have been forced by EU tariffs to buy European wheat instead of looking to the wider world. Any master baker will tell you that the best baking wheat in the world is Canadian wheat. But we aren’t free to buy it because the EU punishes you if you do. And why should we be giving Spain money to grow sugar? What’s wrong with looking to the West Indies and doing trade there? Now when we leave the EU, hopefully we can shop around.”
http://www.telegraph.co.uk/men/thinking-man/sir-james-dyson-so-if-we-le…
The graph attempts to give a completely global picture but fails to give a clear idea of what is happening to the people who have experienced a very significant loss in their share of national wealth, in many first world countries. The following gives a far better picture of what has happened in the USA up to and since the great depression. Namely a large rise in wealth disparity peaking at the great depression, the failure of the economy that this disparity caused, along with wars and a lot of other turmoil. The gradual rebalancing of equality up to the mid 70's and thereafter a steady rise in inequality until we are now back at a situation similar to the great depression. I.e very large inequality, instability and turmoil. It is probably fair to suggest that what happened in the USA was representative of much of the western world.
If the pattern of history is a guide then we are in for a significant period political and economic instability, international conflict followed by a long period of increasing egalitarianism.
http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.ht…
On the one hand globalization has made many richer. People like the Chinese.
On the other hand these wealthy Chinese have bought homes and now those house prices are in a bubble. Will they still be reaping the benefits of globalization after the bubble bursts?
Why are the people in China and other countries who are "becoming wealthy" through globalization busting to leave and come to the West which is suffering?
The world is full of debt and lots of printed money will this keep them rich indefinitely?
The way the world now works is you inflate assets then borrow against those assets for spending money and they call that "Being wealthy" Hahahaha
A good article Bernard but contentious to any who keep an eye on the big picture as a few of the commentators above indicate. I will add to their comments that I believe you are mixing it up so to speak. You say "On the face of it, they're wrong. Globalisation has made most of the world richer for most of the time" But I suggest you're wrong. Globalisation didn't make most of the world richer, it made a small group of the multinational conglomerates richer. For most it meant their jobs were exported to place where by most standards, less than subsistence wages were paid. This was great for those countries, mostly throughout Asia and China as their poverty was worse than most and any wage is better than none. But it actually increased poverty in most developed countries.
You touch on a truth where you identify that where a high school education used to be enough for a reasonable job, at a reasonable rate of pay, but not so today. When the majority of the population (60 - 70% or more) cannot achieve a tertiary education and the level of income one would expect from that, why would that be expounded as a positive? The result of globalisation, which is another aspect of the 'Free Market" economy, is the moving of the vast majority of people back towards a form of slavery, working long hours in menial, low reward jobs for minimum pay. Democracy gives the victims of these economic policies a chance to fight back as the begin to see through the BS that politicians wrapped the policies up in, to the realities that they impose and say no more! The song from Les Miserable says it all - "Do you hear the people sing? Singing the song of angry men!......who will not be slaves again!" A democratic vote is a very soft warning to politicians.
Well just look who is the current Master of the House, https://www.youtube.com/watch?v=7k6uqhKEAOM
I know that there is a state house background but its been a long time since JK lived that life.....
Key you are on notice here, house prices, immigration and big multinationals paying no tax? How come Starship has to raise money when big pharma are paying no tax.... Greens and Labour are going to take Dunes seat and AKL central, they can play the Epsom game as well as you can, your only hope is WP, welcome to the protest vote....
http://www.newstalkzb.co.nz/news/business/top-multinational-companies-p…
UPDATED 9.01AM: A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.
The update is interesting; a comment posted here last week identified that F&P Appliances was bought out by Haier, who promptly borrowed against it and used the funds elsewhere, but loaded the debt against the NZ company, thus avoiding tax here. Turned a successful profitable company into a loss making enterprise overnight. What a rip-off. the Government needs to stop this kind of rort.
"Globalisation has made most of the world richer for most of the time"
Yes well therein lies the problem, there is only so much money to go around plus the richer have got vastly wealthier at the expense of the remaining poor equals revolt.
Peoples expectations and their definition of poor changes from country to country. Poor is not being able to afford a bowl of rice or your starving to death, in NZ its you cannot afford the latest iPhone.
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