'Greatest Reshuffle Of Incomes' In Modern History Helps Explain Trump, Brexit

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The Donald Trump campaign and the Brexit vote are two sides of the same coin: A wave of xenophobic, anti-globalization sentiment that, at its most extreme, results in violent acts of racial hatred.

But the big question remains: Why is this happening?

Economist Branko Milanovic of the City University of New York believes he has an answer, or at least the economic side of the answer. And it has to do with what has happened to people’s incomes over the recent decades of globalization. In a blog post at the Centre for Economic Policy Research, Milanovic asserted that the Brexit and Trump crowds are, in essence, at the losing end of "the greatest reshuffle of incomes since the Industrial Revolution."

Milanovic charted the change in household earnings worldwide over two decades of intense globalization, from 1988 to 2008. What he found was that globalization “lifted all boats,” as the saying goes — except one. And that boat is the one in which Trump and Brexit supporters are sailing.

income reshuffle
(Chart: Branko Milanovic / Centre for Economic Policy Research)

The chart above shows the change in incomes among different income groups in 120 countries around the world, covering 90 per cent of the world’s population. The biggest income jumps were for people in the middle of the global earnings ladder (point ‘A’ on the chart). According to Milanovic, this group largely consists of the burgeoning middle class in the developing world, particularly China and India.

The single smallest jump in income belonged to the people at point ‘B’ on the chart. Seven in 10 of these people are lower-income earners in the developed world — the retail and fast-food worker descendants of the West’s shuttered factories. These people saw virtually no income growth over two decades, even as virtually most others saw solid (though varying) wage growth.

These demographic groups are globalization’s biggest losers, and it’s these people who largely compose Donald Trump’s support base. When Trump (or even Hillary Clinton) criticize NAFTA or the proposed TPP trade deal, these are the voters they are talking to.

closed factory england
The town of Redcar, England, was once an industrial powerhouse. Its foundries produced the steel for the Sydney Harbour Bridge. But its job-creating industries are gone, and the town voted overwhelmingly to leave the European Union. (Photo: Renee Clement via Getty Images)

But Milanovic says you can’t simply blame the rise of Asia’s middle class for the decline of the West’s working class. The global economy is too complex to draw a straight line from Asia’s boom to western job losses, Milanovic says.

But these two events did coincide, “and the plausible narratives linking them, whether made by economists or by politicians, make the correlation in many people’s mind appear real,” Milanovic wrote.

Still, Milanovic’s research does point towards a solution to the rise of the new xenophobia: Bring jobs back to the struggling factory cities of the Western world.

Sadly, that’s a task that’s much easier said than done.

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