Messages from Brexit

Brexit was a British decision, but a global shock, one media outlet observed. Great Britain’s heyday, when the sun never set on the British Empire that commanded territories all around the world, is long gone. Its economy takes up merely 4 percent of the world’s — marginal compared with the United States’ 25 percent and China’s 15 percent. But its rank and influence on the world as the birthplace for market economics and modern democracy remains strong. Since World War II, Britain has exercised leadership with the United States to create and uphold a free economic order on the global stage. It prospered by capitalizing on the merits of the liberal economic order and globalization.

It is why its decision to break away from the mainstream economic order and globalization has taken the world by shock. More surprisingly, the British debunked all the warnings of lengthy economic pain and losses from economists, policymakers and international organizations should it separate from the European Union.

Why did the U.K. take this highly risky path, and what are the ramifications? The idea of placing the decision on whether to stay or leave the EU in the hands of the British people was controversial from the onset. The stakes of leaving the EU should have been studied in a comprehensive and farsighted context as it involves various factors in not only the economy, but also in politics, society and culture.

Outgoing British Prime Minister David Cameron hastily promised to hold a referendum to hold onto his power in a divisive conservative party, but ended up losing his job after failing to convince his party and people of the need to vote on June 23 for Britain to remain in the EU.

Cameron underestimated the resentment of the working class against immigration and globalization policies that they believe have made their lives worse and overlooked that their distrust against the big political establishment and negative public sentiment could determine the country’s future.

His follies have cost him his job and instead earned him the disgraceful description of being an elite politician oblivious to what’s going on in his country. In the meantime, the bad-tempered referendum campaign was a field day for political demagogues to exploit it as the momentum to strengthen their political leverage regardless of the inevitable consequences on national interests. In particular, they fueled anti-immigration sentiment among the public.

As net immigration to Britain reached 330,000 people in 2015 — triple what the government had estimated — a considerable number of the British began to feel their establishments and order were being threatened by the growing presence of immigrants. Panic soon spread upon ill-conceived rumors on an accelerated flood of immigrants if Turkey joined the EU in the near future.

Some political pundits believe that fear has prevailed over reason — and emotion over economic logic — in the Brexit vote. The same factors gave rise to nationalistic conservative candidate Donald Trump in the U.S. presidential campaign.

The British referendum raised awareness in the EU of the sensitivity of the immigration problem and the need for allowing mechanisms for each member nation to control an influx of foreign nationals. It also called for a review of the globalization credo so that the benefits of free trade in products, services and capital as well as human resources can be more evenly distributed, along with appropriate compensation for local workers and enterprises that are hurt from sharing their domestic markets with foreign competitors.

In other words, no matter how many benefits globalization can bring in the broader macroeconomic context, it would be tested by social and political challenges if it causes microeconomic damages to individuals and classes. In most developed economies, a greater number of people have not enjoyed the fruits of prosperity in the fast proliferation of globalization and instead inequalities have worsened. What is imperative is a balanced policy on globalization.

The public has expressed their disgruntlement and distrust toward policymakers and economists in the British vote because they felt the mainstream politicians and experts were more concerned with growth and macroeconomic policies than with evenly sharing the benefits of free trade and liberalization with the workers and enterprises in the shadow of globalization. That delivers important messages to our policymakers and economic analysts.

Incoming Prime Minister Theresa May, who had backed Britain remaining in the EU, will have to negotiate tough exit terms with the EU over the next two years to represent the British choice. The process will certainly lead to a polarization of U.K. society in a different dimension.

Our government and politicians must draw a lesson from the British referendum if they do not want to follow in the footsteps of the U.K., which impatiently resorted to the vote to solve a complicated and challenging political issue.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, July 13, Page 28

*The author, a former finance minister, is an adviser to the JoongAng Ilbo.

SaKong Il