British people who feel they’ve been left out and left behind voted last week to leave the European Union. And the ground is fertile for the same feelings to impact U.S. economic and trade policies.
That’s terrible news for Asia… even if Asia’s markets aren’t crashing as hard as those in Europe (except for Japan), Brexit and its American cousin are a slow and very bad burn for Asia.
Brexit won last week because of money and opportunity – or rather, because of the perceived lack of both.
The Financial Times wrote, “According to all the pollsters, the lower down the social and educational ladder you descend the greater likelihood that someone will have voted Leave, while the best markers for Remainers is having a degree and being aged 18 to 29.”
“… They are not, in the main, angry in a brick-throwing sort of way, but feel slighted by the declining status of so much non-graduate employment and rapid demographic change that no one consulted them about.”
Also, the 17.4 million votes cast to leave the EU “amount to a collective howl of discontent… fueled by a festering sense of betrayal among legions of working class voters in places that have long felt overlooked by what they perceive as a political and media elite in cosmopolitan London.”
This is happening in the U.S. as well. One graph summarises how what’s been happening in America for the past few decades has created fertile ground for the kind of revolt that brought about Brexit.
The figure below shows average household income in the United States since 1967, adjusted for inflation. It shows complete income stagnation for the average family.
The wealthiest households – the 95th percentile (those which earn more than 95 percent of all households) have seen incomes rise by 75 percent since 1967, to just under US$207,000 per year in 2014 (which is the latest data available). That’s equivalent to a compound annual growth rate (CAGR) of 1.2 percent since 1967.
The story is very different for the average American household (the 50th percentile). Average household income has grown just 21 percent, to US$53,657. It’s grown just 0.4 percent per year since 1967. And for the poorest 10 percent, income has risen 22 percent over the same period – to US$12,276.
In some countries, a thousand dollars a month is a princely sum, and the average American household income level is worth a king’s ransom. What is most notable, though, is the weak growth over time. For the past two generations in the United States, household income for all but the wealthiest 5 percent has barely moved. That’s enough to generate enormous pent-up anger and frustration in many levels of society.
The Financial Times wrote that Brexit shows “a stark divide running through a nation – between two tribes of old and young, rural and urban, traditional and metropolitan, and above all those fearful of globalisation, and its beneficiaries.” A similar case could be made for Americans, based in part on the graph above.
Brexit represents a slowdown – and maybe the first steps of a reversal – of the globalisation that’s defined markets in recent decades. When one of the biggest economies in the world steps back from the world’s largest trading block, it’s a powerful statement. And the U.S. doing something similar would be an even bigger blow for Asia.