Trump, Hanson and Brexit: The real reason it's happening now

US President-elect Donald Trump and Australian Senator Pauline Hanson. Source: AAP

Trumpers, Hansonites and Brexiteers are woefully misguided and hopelessly self-defeating, the economists we spoke to said.

Matt Sherwood was one of the few to see Donald Trump’s victory coming.

After Brexit in the UK and surging wealth inequality in the West, he sees it as part of a global wave of revolutionary populism.

“You never have such high levels of inequality without some kind of revolution,” he told SBS.

According to Trump and the Brexiteers, the villans are immigration and globalisation – foist on western economies by a wealthy elite - which have brought in immigrants to compete for cheap labour while quality jobs get shipped offshore.

In Australia too, these sentiments have fuelled a resurgence in protectionist and anti-immigration minority parties.

One Nation seeks to end free trade and globalism, which it says has decimated blue-collar jobs turned Australia into a third-world country.

Major parties are bending too, with an insurgent pro-Trump force in the Liberal’s right flank and Labor’s messaging veering closer and closer to Australia-first economic nationalism.

Senator Pauline Hanson
One Nation says global trade has been a disaster for Australian jobs and advocates 'net zero' immigration.
AAP

But what is really fueling inequality and working-class job losses?

For most economists, the revolutionary zeal displayed in the US and UK is woefully misguided and hopelessly self-defeating.

“The people who were supporting Brexit, and the leaders of the Trump movement, have correctly identified the problems – wage stagnation and wealth inequality – but they’ve prescribed the exact wrong solution,” Doctor Sam Wills, an economist with the University of Sydney and the University of Oxford told SBS.

“They advocate closing borders, closing down trade – when really the answer is to embrace trade, and embrace globalisation – you’ve just got to make sure that the gains in productivity are shared,” Dr Wills said.

Some economists have gone a step further, saying that Trump and Brexit supporters are driven by anti-immigrant ideology in the first instance, and have merely sought to rationalise this through retrofitted economic concerns.  

Brexit supporters celebrate their victory - but putting up borders and shutting down trade is exactly the wrong approach, economists say.
Brexit supporters celebrate their victory - but putting up borders and shutting down trade is exactly the wrong approach, economists say.
AP

Technological change

Matt Sherwood says that the decline in well-paid jobs in blue-collar manufacturing sectors is the result of better technology and automated assembly lines, rather than offshoring or immigration.

“Technological change is taking these people's jobs, not trade,” he told SBS.

“Globalisation is not the monster it has been portrayed as by populist politicians,” he said, noting that exports account for roughly half of America’s economic growth in recent years.

“Technological change gives much better outcomes, but it takes about two generations for these benefits to living standards to be felt by the general population,” Sherwood said.

He points to the industrial revolution and the development of trains and motor-vehicles – other disruptive innovations which we now take for granted.

File photo of new cars rolling along the assembly line at the Ford Manufacturing Plant in Broadmeadows, Melbourne.
Automation and technological advancements allows companies to produce goods and services more efficiently, but owners rather than workers pocket the change.
AAP

Sam Wills says it’s wrong to think of technology as ‘destroying jobs’ – there’s no set number of jobs in an economy he says.

“Technological progress is a good thing for employment,” he told SBS, “we’ve had technological progress thousands of years.”

The benefits are spread across society with cheaper, better products – but the negative social impacts, such as job losses, can be concentrated on specific demographics.

“It may take time for the individual whose job is displaced to recover – by being retrained or changing their location – but the government’s job should be to step in and help ease that transition,” Dr Wills said.

Donald Trump Holds Campaign Rally In Dallas
President-elect Trump has promised to bring back manufacturing jobs to the United States.
Getty Images

Growing inequality

But technological advancements have another major, underappreciated impact – they increase inequality.

As a company replaces workers with machines and computers, wages decline as a portion of expenses and a greater share of profit goes to investors, shareholders and business owners.

“As technology improves, the productivity of capital improves,” Dr Wills said. “Investors are the ones who are capturing all the gains.”

To balance against that, governments need to readjust their taxation and spending frameworks.

That means taxing wealth, Dr Wills said.

Capital gains, corporate loopholes, large inheritances – all should be subject to further taxation Dr Wills said – but that can be a challenge in a world of tax havens and complex tax-avoidance schemes the economist said.

Dr Wills says the government can then lessen inequality and boost people's earning capacity by spending money on training and re-education, as well as mandating a strong minimum wage and robust labor laws.

But fighting against technological advancements themselves – or pushing companies to retain obsolete positions – will always be a losing battle.

“I don’t think anyone disputes that we would rather be in the world that we are in, rather than a world in which there’s been no technological innovation. That would essentially put us back 10,000 years,” Dr Wills said.

Trade and Offshoring

Global trade – once a bi-partisan cause for establishment politicians – has also come under fire.

Donald Trump’s campaign featured almost conspiratorial tirades against free trade, with trade and immigration becoming central themes of the UK’s divisive Brexit debate.

In Australia too major parties produce the rhetoric of ‘bringing back’ working-class jobs.

“In the mining towns, the manufacturing suburbs and regional communities of our country our fellow Australians are hungry for recognition,” Labor leader Bill Shorten said in a recent speech.

While he slammed trickle-down economics and tax cuts for the rich, the very same speech was criticised for channeling Trump's rhetoric.

“More and more Australians are worried about being off-shored and contracted-out and outsourced and downsized,” Mr Shorten said.

Australian Federal Leader of the Opposition Bill Shorten
Bill Shorten says Labor needs to acknowledge the seeds of disquiet that led to Trump being elected.
AAP

But again, most economists say that global trade is a net-positive for everyone, even if it can be a bumpy ride for those in the firing line.

“Globalisation and trade are good for jobs and economic growth,” Sam Wills said. “Countries like Australia and America have done very well.”

Open international trade allows countries to concentrate on what they do well, while relying on imports to make up the gaps.

“Globalisation increases the size of the pie – there is the potential for everyone to benefit – but the pieces aren’t currently being shared equally,” Dr Wills said.

Again, it’s the transitional period – as industries move overseas and export markets shift – that can be difficult for workers.

“What globalisation has done is reduce inequality between countries, but increased it within them,” Matt Sherwood told SBS.

Countries such as China and India have seen millions lifted out of poverty as workers have joined global supply chains, but the profits from those efficiencies have gone shareholders and business owners.

US Stock Market
Economic gains from trade and automation have disproportionately gone to investors, business-owners and stock-holders, economists say.
Getty

Immigration

By railing against immigration, leaders could also be shooting themselves in the foot, Wills and Sherwood told SBS.

“There are two big sources of any economy’s growth rate – they are having more workers, or having those workers be more productive,” Sherwood told SBS.

“If you can’t have workers being more productive, what you simply need is more workers. Apart from boosting birth rates – immigration is the way to do that,” he said.

Dr Wills says it’s a fallacy to think that immigrants are able to ‘steal the jobs’ of anyone.

“Immigrants create jobs rather than steal jobs,” he said, “every human being that comes into the country brings with them the ability to work, but they also want to consume things.”

He says there’s little evidence that the extra workers are a burden on health and welfare systems. They’re often young, fit and eager to work.

“All the evidence suggests that immigrants do come and work,” Dr Wills said.

Australia's Prime Minister Malcolm Turnbull
Prime Minister Turnbull has stressed the importance of global trade as well as ensuring fairness in the wake of Trump's election.
AAP

Trump, Hanson and Brexit

Matt Sherwood sees Trump, Hanson and Brexit as part of a revolutionary wave sweeping across the West.

The cause is inequality, he said, and the failure of mainstream politicians to provide an answer.

While political turmoil has been the outcome in the US and the UK, he said Australia could still avoid a similar fate.

Both Paul Keating and Malcolm Turnbull – perhaps two of the most classically elite Australian Prime Ministers in recent decades – immediately pivoted to issues of fairness and equality in the wake of Donald Trump’s election victory.

“This society of ours is a better society than the United States,” former Prime Minister Keating said.

“It’s more even, it’s more fair,” he said, citing wage growth, universal healthcare, high-education rates and superannuation.

Prime Minister Turnbull said the government had to make the strongest case possible for open markets and free trade.

"It's important for leaders to ensure that everybody in the community, all sectors of the community, are included ... that communities are not left behind," he said.

To succeed in a nation finely split between the major parties, with a multitude of determined senate cross-benchers, Turnbull has his work cut out for him.

“Australia has really key challenges ahead, and it doesn’t look like it has the political system to be able to deal with it,” Matt Sherwood said.

“It will be difficult to seek out a centrist path between populist parties on either end of the political spectrum,” he said.

“Unless Labor and Liberals are able to find common ground - which looks increasingly unlikely.”

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