One thing has become very clear since the unexpected popular vote in Britain to exit the European Union – the political, economic, social and journalistic elites on both sides of the Atlantic don’t get it.
For two weeks I have been taking in all things Brexit, the television in my home office tuned to a pinwheel of cable and broadcast news stations, the newspapers and magazines arriving daily at my door.
So much hand wringing. There is the shock at the vote, the anxiety over what it means for finance and profits and stock market prices. There are many frequently asked questions to be posed and answered. And, of course, tons of speculation about which politician, party, company and industry will benefit or lose out.
The concern expressed by politicians, economists, CEOs and in news reports and opinion columns is easy to sum up because the overwhelming volume expresses a common concern with affected workers: What will the investment bankers do?
How many bankers will have to move from London? asks a columnist in The New York Times. And will they move on to Amsterdam or Barcelona or Paris or…. The list of possibilities goes on and on, complete with a map of Europe. Truly, how awful to be forced to contemplate a move, especially with a corporate moving allowance and all. Oh, how will the bankers bear this burden?
And where bankers go, lawyers and accountants are sure to follow.
Missing in Plain Sight
Nary a word, though, about the people whose votes stunned the rich and powerful. It is as if anyone not wearing a tailored suit and counting their growing wealth in the millions – be it dollars, pounds or Euros – simply does not exist.
Those 17.4 million people who voted to exit the European Union must be awfully hard to find. Neither print reporters nor the people who book guests on television have been able to scare up more than a few.
I have caught just one television reporter who went microphone in hand to the Midlands, the once-prosperous British industrial area that is now a wasteland, not unlike the American Rust Belt, just smaller. What I didn’t see was any actual Midlander interviewed – just the reporter’s synthesis of what the common folk supposedly are saying.
I did randomly catch one real live working-class person on another show. The bloke owned a sandwich shop in The City, the area of London that operates under rules dating back to the 11th century that granted extraordinary freedom to manipulate the ownership of assets and tax benefits the likes of which kings once killed for – literally.
To this petty merchant, Brexit spells disaster because there will not be nearly as many people ordering delivery and takeout as they yak away on their telephones and enter trades into their computers.
Nobody is offering that fellow a move to one of those other European cities so he can follow the money and keep feeding his family by the sweat of his brow – or at least by getting up very early in the morning to make sure the better-offs are properly fed.
The Real Message
Brexit happened because, for decades now, those who have discovered the fortunes to be made in the new financial order have thought of themselves, not of their fellow human beings.
What are sometimes referred to as “those people” spoke, but no one is listening to the real message.
The industrial economy that created good-paying jobs for millions and millions of people in Britain (and in the rest of Europe and North America and industrial Japan) is ending.
The reason is not evil intent but progress: Inefficiency creates jobs. Efficiency destroys them. Work that once took hundreds of workers is now automated. Steelmaking towns depopulate fast when the process of turning rocks into hard metal requires not an army of workers, but less than an hour of labor for each ton of molten metal.
And then there’s the “labor arbitrage” of globalization.
Fortunes are made in stock market arbitrage, in which a security bought on one trading floor is quickly sold on another at a slight difference in prices. A woman once showed me her collection of Monets, Miros and other art, saying her late husband made his money “pennies at a time in arbitrage.”
When companies move factories from the Midlands or Minnesota to a country like China where labor is cheap and the government ruthlessly suppresses unions while ignoring pollution, they are engaging in a labor arbitrage. But instead of pennies at a time, they add to their profits at a rate of many dollars per hour of labor.
Job-destroying industrial efficiency gains and wage-lowering globalization are realities. In the long run they should make the world as a whole better off. But did the British factory workers whose hands are now idle volunteer to have their modest circumstances reduced so that the poor of China could move up the economic ladder?
There is danger in the self-centered focus with which the most prosperous explain what Brexit means.
Karl Polanyi, the great Hungarian philosopher economist, told us what happens when people lose economic control and do not understand the forces at work. In his book “The Great Transformation,” and the many articles that preceded it, he described how economic terror became the foundation from which fascism swept through Europe.
Unlike the blithe, and historically silly, explanations taught to most Americans about the first half of the last century, Polanyi explained the long tail of liberal market economies that produced the horrors of two world wars.
At its most basic, Polanyi showed what happens when markets are left to self-regulation, starting with the rise of unregulated managerial capitalism in the late 19th century.
And What Could Happen Next
Markets will in time self-correct. The problem is that, in the process, they often get worse, resisting change and the regulation that would limit damage. These conditions yield bitter fruit as people lose jobs, lose hope and fear that tomorrow will be worse than today. Demagogues arise, gaining support and power as people try in desperation to understand what has happened to them and are offered answers that seem to make sense.
Brexit was not about the bankers. It was about ordinary people who just want a job, but cannot find one – or, if they do, must work more for less.
The message from the Brexit vote was that we all need to turn our thoughts to the concerns of the people who voted for Brexit. We need to actually care about them. If we do not they will, for sure, act in what they believe is their own best interests. Voting to leave the European Union could be just the start of much more disruptive responses that may have bankers worried about a lot more than in which city they will collect their next bonus.
- Pulitzer Prize winner and recipient of an IRE medal and the George Polk Award, David Cay Johnston is author of five books. His next book, The Making of Donald Trump, will be out on August 2, 2016, to be followed by The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy. He is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for The Daily Beast and Tax Notes.