IAN McAULEY. Brexit, Trump and the Lucky Country 1 – Who’s been left behind?

Jan 9, 2017

In “developed” countries the benefits of 35 years of economic growth have been unevenly distributed. Many people who once had well-paid manufacturing jobs and many who live in the country have fallen behind. While this has been most starkly manifest in the US, it is also happening in Australia.

No sooner had the Brexit vote been announced than the commentariat were talking about a great but hitherto unseen tide of change washing over the world, or at least over the prosperous liberal democracies.

A rejection of globalization was the first explanation, followed by the idea of a right wing resurgence. Then, in the US election campaign, Hilary Clinton let slip what many had believed but not uttered – that Trump’s supporters, or at least half of them, were “deplorables” (translating roughly into the Australian term “bogans”), who, by implication, lacked the capacity to make a wise choice at the ballot box. It’s reminiscent of arguments for the limited franchises of our state upper houses when only “proper” people of means were entitled to vote in legislative council elections, a restriction that held until recent times.

These and other explanations may have some validity, but it would be fallacious to ascribe Brexit and Trump’s success to one big factor. Further on in this series we will look at the impact “globalization” has had on “developed” countries: it seems to have been loaded with many of the sins of neoliberalism. And we will look at the supposed swing to the right, even though by some interpretations one could equally describe the developments as a swing to the left. Many of the issues which have influenced these votes are ones that in the past directed support to social-democratic parties, such as the Democrats in America and Labor here.

Who’s won and who’s lost – the disappearing middle class

A starting point is to look world-wide to see how the gains from economic growth have been distributed over the recent decades. This is shown schematically in the figure below – sometimes known as the “elephant curve“.


Starting at the low income end, while there are still many people trapped in poverty, particularly in south Asia and Africa, in north and east Asia strong economic development has seen many lifted out of extreme poverty – almost a billion in China alone. Manufacturing workers in these countries are now occupying the position manufacturing workers in “developed” countries held in the postwar years, but at a lower absolute income (for now).

The people who have not shared in this growth are the middle-classes in “developed countries”, who in 1980 were in the middle of the distribution within their countries but up near the top on a worldwide scale. In fact for them the curve dips below the axis. In the US average real wages now are lower than they were in 1970. In other countries the general pattern is that while middle-class wages have risen, growth has been low.

At the top the very rich have become richer, in both “developing” and “developed” countries.

In “developed” countries the very poorest, dependent on social security benefits have generally kept up their relative position, albeit from a low base in many countries. The general pattern has been a hollowing-out of the middle, and those who have slipped back are described as having been “left behind” (a term with its own patronising undertone).

Not only have they failed to share in the benefits of growth, but also many have borne personal costs associated with economic change, including unemployment, displacement and lost status. These changes in fortunes go well beyond the normal dynamics of social mobility – in some ways they are the antithesis of social mobility because they may be entrenching inequality.

Unlike the unionized working class of earlier times those who have not prospered don’t form any defined group. Therefore, lacking organization, they don’t have a strong voice in the corridors of power. When the chance comes, the ballot box remains one place where they can be noticed and exert some influence.

Their voice broke through in the Brexit and Trump votes.

The Brexit and Trump votes in perspective

It is easy to be carried away by the drama of those votes, as if they came without notice. But most probably the discontent fuelling them has been seething for a long time. Give or take a few years, inequality in “developed” countries, one of the main drivers of discontent, has been rising since 1980. For the first few years widening income inequality may pass unnoticed as people reduce their saving or go further into debt to sustain their material living standards, but those coping mechanisms have obvious limits, and in time income inequality leads to wealth inequality, which, as Thomas Piketty warns, is self-perpetuating. Discontent mounts over time.

Just as geologists cannot predict just when the pressure in tectonic plates will cause an earthquake, it’s hard for even the most informed political pundits to predict when election results will tip over the threshold constituting a winning margin. Had a few more people in the UK and the US – “progressives” who take liberalism for granted – gotten out of bed and voted, the current political narrative would be radically different, even though the discontent would still be there, to be manifest at a later vote or referendum.

Although the Brexit and Trump results are significant – highly significant – they need to be seen in perspective, because they stem in part from biases in voluntary voting, particularly when opinion polls predict a clear winner. Why vote if the outcome is already determined?

The other bias is about people’s motivation to complain. Business people know that dissatisfied customers are far more likely to complain than satisfied customers are to send thank-you emails; university lecturers hear far more from students who feel they have been marked down unfairly than from those who have had the luck of easy exam questions. There is a psychological distortion – the “representativeness bias” – leading us to over-estimate the strength of those who make the most noise.

The Brexit vote was 52 percent on a 72 percent turnout (37 percent net), and the Trump vote 46 percent on a 58 percent turnout (27 percent net). With compulsory voting, or even a more engaged electorate, the outcome for the US election at least would have been very different. (Support for Brexit seems to be more solid.) Possible reasons for political disengagement by “progressives” will be covered in Part 5.

Australia, thanks to the mining boom and our trade links with China, has not seen the same extent of hollowing out of the middle-class Until the last three or four years most incomes have been rising, but even here the gains have gone disproportionately to the already well-off. In Australia, from 1910 to 1980, income inequality lessened, but since then inequality has opened up once more, and we are now back to around where we were in 1945.

Riding on the Brexit and Trump votes, nativist and right-wing movements have been energized, and in Australia we have not been immune from this trend. Polling suggests that One Nation has been improving its vote, and may do well in rural and outer-suburban seats in the coming Western Australia election. Politicians on the conservative right of the Coalition parties, drawing confidence from Brexit and the Trump vote, are asserting that their time has come.

Also in Australia, the Murdoch media is revelling in the supposed end of progressive political movements, and true to form their journalists are stirring up anger and indignation as a way of enticing people to vote against their class interests.

Just as in 1917 communists talked about a great people’s uprising – a movement justified by its own supposed momentum – a hundred years later it’s now convenient for some to assert that there is an unstoppable and inevitable swing against liberalism.

But while the Brexit and Trump net votes are big, they are not overwhelming.

Echoes of Brexit and Trump

Even if the left-right aspects are blurred, there is a clear regional dimension to these votes, however. In the UK, London voted strongly against “Brexit”; in the US the map of the Clinton vote fits neatly with the map of urbanization; in the recent Austrian presidential election Salzburg and Vienna voted strongly for the liberal Van der Bellen, while rural southeast Austria supported Norbert Hofer of the right-wing populist Freedom Party. In Poland support for the authoritarian prime minister Viktor Orban is strong in the countryside and weak in Warsaw. In Egypt much of the political tension is between relatively secular urban dwellers and rural religious fundamentalists.

In our own federal election last year, while established parties – the Coalition, Labor and the Greens – held 90 percent of the vote in urban areas, in “provincial” electorates (as defined by the Electoral Commission) their vote was down to 87 percent and in “rural” electorates 81 percent, where a Melbourne Cup field of independents and small parties gained the balance.

There is nothing new about urban/rural divisions. Cities, particularly ports, are where merchants trade with foreigners, where places of higher learning are located, where governments keep their bureaucracies, and generally where immigrants first arrive and settle. They are where the economic liberalism of market capitalism and the social liberalism of public servants and scholars come together – not entirely harmoniously but with enough common ground to ensure peaceful co-existence. And they are where, through market or political power, so-called elite groups have been able to do so well for themselves materially.

The divide between prosperous coastal cities and the rest is particularly strong in the US because inland America includes what were once the world’s great economic powerhouses – including auto manufacturers of the Great Lakes area and steel mills of Pennsylvania. These are where manufacturing workers, who once held well-paid and well-respected jobs, have become unemployed, or if they have found work it’s been in poorly-paid and insecure service-sector jobs, without benefits such as health insurance and pension plans.

For American manufacturing workers the unquestioned and assumed contract in the postwar era was that if you worked hard and were loyal to your employer that loyalty would be returned in terms of job security. Those who had put their faith in that contract feel betrayed and duped, particularly when they have seen how the executives of those same corporations have looked after themselves so well while sacking thousands of workers, and when they see public servants, in their relative security, view economic change only in terms of a few figures produced by the country’s statistical agency. Aggregated figures on income, unemployment and other indicators, so often cited by government ministers, tend to average out huge changes within particular regions and groups.

Australian echoes

In Australia these changes have not been as brutal as in the US, because the transition from a manufacturing job to a service sector job, thanks to a relatively high minimum wage, does not involve such a sharp drop in pay, because health insurance is provided by the government rather than being tied to employment, and because our industrialized regions are mainly in or near the coastal capitals. (Gladstone and Whyalla are telling exceptions to the rule: it’s notable that in Whyalla the Xenophon candidate gained two thirds of the two-party vote.)


But there is the same sense of betrayal, regardless of location. Even if people accept that technological change and import competition are inevitable, they see no reason for other assaults on the working conditions of wage and salary earners. These assaults include the easy use of 457 visas for temporary workers, lax enforcement of minimum pay and conditions in horticulture, small business and franchise chains (particularly convenience stores), and general attacks on the union movement.

Also, there is a strong historical attachment to manufacturing and other industries involving transformation of physical products, including agriculture and construction. In the US a popular stereotype of the service sector is “flipping hamburgers”, presumably for minimum pay. In Australia Barry Jones once quipped that we don’t consider any activity to be of value unless it’s to produce something that hurts when you drop it on your toes.

Historically, going right back to the days of the early industrial revolution, a manufacturing base was a sign that a country had “made it”. The American War of Independence was in part a reaction against the so-called “Navigation Acts” that had the effect of suppressing colonial manufacturing activity. Here in Australia at the time of Federation development of manufacturing was the path to the development of a well-paid working class. The 1948 picture of Prime Minister Chifley standing beside the first fully Australian-made car to roll off the assembly line – the FX Holden – was a symbol of our status as a truly “developed” country. There is a great deal of emotional investment in manufacturing.

Australia’s own discontent – what happened to the “fair go”?

While we have not had such a relatively strong manufacturing decline as the US or the UK, and our regions are less unequal, there are two areas where Australians have probably had a rougher ride than their counterparts in other countries.

The first has been the wild swings in our exchange rate, a result of our commodity dependence and a lack of policies to help stabilize the economy from such dependence. All trade-exposed sectors – manufacturing, agriculture, tourism – have been buffeted by exchange rate swings. Some young people have ridden the waves of opportunity, taking highly-paid but insecure basic-skill jobs in mining, but others, more rooted to their communities, have experienced nothing but costly personal and business disruptions.

The other has been a policy obsession with competition. Somehow our policies switched from an oppressive paternalism in the postwar years to a gung-ho enthusiasm for competition, without ever pausing on the way to examine if there was a point at which the costs of competition started to outweigh its benefits. Many industries – utilities, retail, government-funded community services – have been subjected to vigorous competition policy. Workers, contractors and investors don’t know if their outfits will be in business once the next tender is evaluated – in a process subject to gaming, lowballing, and impression management. It’s as if policymakers have come to see competition as an end in itself, rather than as a means to economic efficiency.

Perhaps the greatest loss in Australia, felt by so many people – including some who themselves have prospered – is the loss of the “fair go”.

The “fair go” and “egalitarianism” are overworked myths – ask any woman, aboriginal person, or prospective Asian immigrant how they experienced Australia in the postwar years and if they benefited from a “fair go”. But by most measures Australia has become a much harder and more unfair society in the last 35 years, and, as in the US, the people most sensitive to this change are those who in the US would be classified as “white men”.

We thankfully don’t have such categorical racial descriptors, and we don’t have the toxic legacy of slavery, but there are many men, particularly in rural Australia, who have witnessed what they see as minorities – recent immigrants, women, aboriginal people, even their own children who have fled the rural roost – getting ahead while they themselves are standing still. A false impression that minorities are doing well is reinforced by well-publicized success stories , another instance of the representativeness bias at play.

Those who mourn their loss of relative status may seem to be unreasonable – after all it’s simply a replay of early colonial days when many emancipated convicts leapfrogged over the class system – but their sense of loss is tangible.

Political research shows that when a group loses its relative status, its members are likely to become resentful. In the old “developed” countries there are many who have lost in relative status. It may be that their old status was one or two steps above immigrants, who had their place in jobs native Australians felt were below their dignity – unpleasant work such as cleaning, or boring work on the assembly line. When immigrants and their children, particularly if from non-traditional sources, started occupying prestigious professional roles, those fragile markers of class superiority were lost.

These are the resentments manifest at the ballot boxes. But why have they taken the particular, apparently self-destructive path, of support for populist movements which promise so much but can deliver so little? That’s covered in the next section.


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