People are scurrying around fretting about the wrong thing. Donald Trump is a symptom not a cause of our ailments and Hillary Clinton is not the antidote. Brexit is a symptom too, and Theresa May will not help either. We are not missing the malaise because of an absence of markers. They are all around us in the advanced economies. In the land of liberte, egalite and fraternite, Marine Le Pen’s National Front is likely to win the first round of the French presidential election in 2017. Earlier this year, the far-right Freedom Party candidate Norbert Hofer narrowly failed in the second round of Austria’s presidential election.
Trump’s rudeness may tempt Asians to recall that when M.K. Gandhi stepped off the boat in Southampton in 1931 to attend the second round table conference on India’s future, it is reported that he was asked what he thought of Western civilization and he replied that it would be a very good idea. But this is no time for any schadenfreude east of the Caucasus, however, because Asia played a critical role in the cause of this rising tide of Western nativism. This has been revealed by the unpacking of data on income distribution within and across countries by Banko Milanović of the Luxembourg Income Centre.
If you remember the death of Chairman Mao, the landing of Viking 1 on Mars and Nadia Comaneci’s perfect 10s, then within your lifetime there has been the largest reordering of incomes in the history of mankind. Back in 1986 an unskilled worker in the US earned on average six times what a skilled worker in China received. Where you were born determined what life you would lead.
Thirty years later that gap has disappeared. The Great Uplifting of one billion people from poverty, 90% of whom were in Asia, occurred as a result of a giant reshuffling of global production. What was once made by blue-collar workers in Michigan is now being made better, faster and cheaper in Manchuria. The triumph of capitalism at the end of the Cold War lengthened supply chains. China’s later entry to the World Trade Organisation was both part of this and added to it.
The people who enabled this great reshuffling of production were the professional classes in the advanced economies: lawyers, accountants and bankers. They say they were doing “God’s work” but they charged more than a few bits of silver. For every $1 of extra income that went to the billions of poor workers, the global elite took 44 cents. Twelve percent of all Americans fall into this group of elite professionals. They earn $150,000 a year plus. We know them. They lobbied for tax, accounting, investment and employment laws to make it more profitable for them to shuffle global production around. This small, self- satisfied group, multiplied by its fat wallets, has driven the market for luxury brands skywards.
Trump and Brexit have introduced us to the losers. Blue-collar workers from the battleground states of Iowa, Ohio and Indiana have experienced no increase in real incomes across the last 30 years. Zip. Successive governments also told them it was their fault, pushing them off welfare and putting them and their kids into sinking schools and ill-equipped hospitals. Trump and the Brexiters told them it was China’s fault and only if they took back their jobs from the Chinese, they would be rescued. No wonder “the unswayables” stick to their man come what may. Dismissing these supporters as misogynist, racist and ignorant misses the point. Trump may or may not slink away after 8 November, but the genuine despair and anger of his supporters will not.
Milanović’s data makes for some disturbing reading, but there are two positive messages to take away. The first is to say that in just 30 years, a billion were pulled out of the misery, inhumanity and nastiness of poverty. If the only way to achieve this was for a few hundred million people, who were, in global terms, overpaid for their skills and comfortably well off, to stand still while the others caught up with them, then it would still be the right thing to have happened.
It is striking that the liberal intelligentsia in advanced economies tried to stop the Great Uplifting by forcing China’s exchange rate higher. Brandishing economic models that neither predicted China would grow faster than any large country in the history of mankind nor helped them lift their own economies out of anaemic growth, American liberal economists argued that China could grow faster still if only it raised its exchange rate in a manner that had shoved the Japanese economy into a vicious deflationary cycle a decade before. The Chinese smelled the trap and resisted the pressure for as long as they could.
The second hopeful message is that there was a way to have helped blue-collar workers in the advanced economies that did not include reversing the gains from the world’s poor. It was to make stronger efforts to spread the 44% commission the global elites paid themselves for reshuffling global production.
This could have been achieved through a mix of monetary and fiscal policies less supportive of financial markets in general and house prices in particular—the distribution of financial assets is far more ill-balanced than income. Fiscal policies could have raised more property taxes and spent the proceeds on providing wider educational access to being part of the professional classes. There are routes away from Trumpism and Brexit but they do not lie along the current fashionable path of zero interest rate austerity.
Avinash Persaud is chairman of Elara Capital and an executive fellow of London Business School.
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