Bernard is an economics columnist for the NZ Herald

Bernard Hickey: The people are revolting

Donald Trump congratulated Brexit voters when he visited Scotland. Photo / AP
Donald Trump congratulated Brexit voters when he visited Scotland. Photo / AP

All over the developed world the masses are revolting. The Brexit vote was a howl of protest by often poorer, older and less-educated Brits who felt insecure, impoverished and alienated from rich Londoners preaching the benefits of globalisation.

These Brexiteers essentially said they'd had enough of being told the free movement of goods, services and capital across borders would make everyone richer and happier in the long run. After 30 years of removing trade barriers and welcoming immigrants, they finally said "enough".

Donald Trump's supporters are doing the same and clones of Trump and Brexit campaign leader Nigel Farage are all over the developed world, ranging from Marine Le Pen in France to Geert Wilders in the Netherlands and Pauline Hanson in Australia. Winston Peters is in many ways our version of the same populist phenomenon, campaigning against globalisation and migration.

On the face of it, they're wrong. Globalisation has made most of the world richer with cheap imported goods, free online services and easy travel around a vibrant fabric of cultures.

According to former World Bank economist Branko Milanovic incomes for the majority of the globe's population have risen between 20 per cent and 80 per cent from 1988 to 2008.

Hundreds of millions of people in China, Eastern Europe and emerging Asia have been lifted out of poverty and into the middle classes.

Those at the richest end of the spectrum in places like China and America have also done well, but even their income growth hasn't been as strong as for those in the middle of the spectrum.

But Milanovic also reveals an alarming gap in income increases between the low-to-middle income earners and the wealthy - where the Brexiteers and Trumpites live.

These workers, often men from the rust belts of the north of England and the north and mid-west of America have seen their comfortable and increasingly prosperous lives of the 1950s, 60s and 70s upended by the dismantling of the Berlin Wall in 1989 and China's accession to the World Trade Organisation in 2001.

Salt was rubbed in the wounds by a range of reforms and austerity that chewed away at the post-war social safety net of subsidised education, health care and benefits for the sick and unemployed.

Imagine how productive and wealthy our economies would be with a President Trump and a Prime Minister Peters.

The Brexiteers and Trumpites are now revolting, which often means blaming the "others" - those in the governing elites and those arriving from other places.

The arrival this week of new household wealth figures for New Zealand reinforced that these changes in the global economy have made many wealthy, but have left others behind over the past 20-30 years. The top 10 per cent of our households own half the wealth, the bottom 40 per cent own 3 per cent. The poorest 5 per cent are underwater because they owe more than they own.

New Zealand was more unequal than Luxembourg, Britain and Australia in these figures, although not as unequal as the US or the Netherlands.

John Key and Bill English brushed this off as "nothing out of the ordinary" and in line with what has happened for 30 years around the world. That may be true, but it doesn't provide an answer to the masses in the developed world who are revolting.

At some point, the governing elites of mature and globalised economies like ours will have to come up with a new deal to redistribute some of the bounties of globalisation.

In the dry language of the markets, the costs of allowing the middle to miss out will outweigh the benefits of doing nothing and allowing the inequality to keep growing.

That new deal will have to involve some sort of redistribution of income and wealth, and the rebuilding of the welfare state. The alternative doesn't bear thinking about.

Imagine how productive a our economies would be with a President Trump and a Prime Minister Peters. Or worse, if democracy does not survive the resulting stresses.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

Read more by Bernard Hickey

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