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Middle-Class Backlash Threatens Globalization

Distrustful voters are backing populists and reminding everyone how democracy works.

Globalization Dead EndA populist sentiment sweeping the world is taking aim at the global economic order set by the United States in the decades following World War II.

Rising inequality, political polarization, and a growing belief that governments serve the monied elite are destroying the trust and cohesion that healthy societies are built on.

Far right parties have found a foothold in Europe, while far left parties continue to prosper in Latin America. They differ in views but take aim at the elite and their globalization agenda.

In the United States, angry and cynical voters are increasingly looking to elect a protectionist government that would raise tariffs and abandon trade deals, unwinding decades of trade liberalization.

When you say globalization is good for the economy, they say, ‘Yeah, but not for me.’

— Trevor Thrall, senior fellow, The Cato Institute

It’s a movement born of those left behind and ignored in the current order—the old middle class, the working poor, the underemployed, and the unemployed—who have not seen the gains others have enjoyed under economic integration. The people supporting it have brought Donald Trump to the head of the Republican Party and lit a Bernie Sanders fire in the Democratic Party.

And while Brexit sent stock markets tumbling, a U.S. pullout from NAFTA—something Trump has suggested is possible—could be much more significant, according to Laura Macdonald, director of the Institute of Political Economy at Carleton University in Ottawa, Canada.

“I think that could create major economic and social dislocation,” she said.

“We could see a backward movement in the global economy, and the global economy is already on shaky footing.”

Inequality and Political Polarization
Rising inequality and political polarization have come at a time when many believe governments serve the rich.

According to the populists, trade deals and globalization help big companies make money by exporting jobs and avoiding taxes. Businesses then contribute to political candidates that support those interests.

This narrative fuels populist movements around the world, unsettling economists who see the growing backlash as a threat to economic stability.

“That is absolutely the problem going forward and I don’t think anybody has a magic solution,” said Edward Alden, a U.S. economic competitiveness specialist at the Council on Foreign Relations.

Alden believes that if trade deals and economic integration are to develop further, companies must be more committed to local communities, and citizens will need to start trusting their government again.

“If you can’t tackle these problems, I think the situation is just going to get worse and worse.”

Populist movements proclaim that the good people, the average common man and woman, are being mistreated by a small clique of elites who can and should be overthrown.

This sentiment is the seed of revolution, a precursor to upheaval, and the fertile soil in which Trump has planted his claim on the presidency.

It is the same field in which Bernie Sanders tried to sow an upset to Hillary Clinton’s coronation, and where Brexiters reaped sovereignty from the European Union.

Delegates hold up signs against the Trans-Pacific Partnership (TPP) on the first day of the Democratic National Convention at the Wells Fargo Center in Philadelphia, on July 25.

Globalization is a direct output of money in politics, according to the Trumps and Sanderses of the world.

International trade deals like NAFTA and the Trans-Pacific Partnership (TPP), or international trade regimes like the World Trade Organization (WTO), International Monetary Fund (IMF), and the EU, are thus tools of the globalists.

People may have laughed Trump off at first, but the backlash against globalization must be taken seriously, said Darrell West, vice president and director of governance studies at The Brookings Institution.

The elite must address the loss of trust that populists are using to shut down the free trade agenda, he said.

“If people don’t have confidence in government, it’s going to be hard for voters to trust political leaders to negotiate a better deal,” said West.

“It’s become a toxic political environment, both on the left and on the right, for any type of trade agreement.”

That toxicity spilled onto the floor on the first night of the Democratic National Convention, as Sanders’s supporters and others waved signs reading “NO TPP” and chanted the same during congressman Elijah Cummings’s speech.

Populists are, at one level, responding to a trend revealed by former World Bank economist Branko Milanovic, now a visiting presidential professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study Center.

Milanovic documented a trend from the mid-1980s to today that showed how the rich got richer, as did the poor in less developed countries. The middle class in the United States, however, saw very little gain. While middle-class incomes have more than doubled in countries like China and Indonesia, living standards have stagnated for the middle class of America.

“Benefits for that group have been much smaller and I think that is where a lot of the grievances are coming from,” said Alden.

These are the people who paid the taxes, built the companies, and elected the governments that propelled liberalized trade. These are the people former president Bill Clinton pledged prosperity to when stumping for NAFTA and normalized trade with China in the 1990s.

Unfortunately, the specific concerns of the middle class are often assumed to be met by proxy through helping a country’s business community. Macdonald said governments need to change that.

The American upper-middle class is separating, slowly but surely, from the rest of society.
— Richard V. Reeves, senior fellow, The Brookings Institution
“They’ve been focused on opening markets, responding to demands by big business, and haven’t come up with measures that might address some of the implications that come up when markets are liberalized.”

Those implications can range from restrictions on regulations to greater unemployment.

Trust and Education
It is not just that the rich got richer; within the middle class, some saw gains and some saw losses, further dividing people along economic lines.

Education has become the deciding factor in a new class order that sees politics, culture, and wealth increasingly polarized.

“The American upper-middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income—where the top fifth have been prospering while the majority lags behind,” wrote Richard V. Reeves for Brookings last year.

For those who had the skills and education to adjust to the current global economy, there was prosperity. This is the new middle class.

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