A Bigger Pie, but Some Left Starving

What Brexit shows more than anything else is that policies associated with globalization—in particular free trade and removal of restrictions on immigration—have been met by certain groups with resistance. These groups are angry about these policies, and it makes a lot of sense that the vote went the way it did given this anger. We will see an increase in these nationalistic, anti-immigrant, antitrade-type votes across the board in almost all the advanced countries.

One of the big problems economists have had is that these policies they have been advocating—more trade, more immigration—which I agree make the size of the pie larger and are the right policies in the long run, have negative distributional consequences. Some groups are negatively affected, and economists and policy makers mostly ignore these effects. We now have solid evidence showing the negative consequences of globalization on certain groups. For example, in the United States we know counties that previously produced goods that end up being exported by China into the US have been devastated. We see higher unemployment, higher suicide rates, and even higher opioid addiction.

Economists and policy makers often think policies that increase the size of the pie will automatically benefit everyone, and that’s just counterfactual. If you are going to get the true fruits of some of the policies associated with globalization, you have to think seriously about the groups within a country that are adversely affected by those policies. You cannot just assume everything will work out for these groups.

For more from the Chicago Booth faculty on the fallout of the Brexit vote, visit our collection here.