At a time when all of us were convinced that globalisation was firmly perched in the world economic order and that regional trade blocs such as the European Union were the only way forward, here came the divorce of the century -- Brexit.
Until a few days ago, it would have not sounded plausible that the British would exit this marriage of 43 years. As a global citizen looking at this vote, it was a bit unbelievable for me too. We have grown up into the idea that we will all move forward and amalgamate into a more just and egalitarian world.
It is one thing to talk about amalgamation and telling the world that we believe in equality and quite another, when it comes to accepting the ideas as part of your own reality. We have all heard the British talk about the idea of Commonwealth and how countries that were part of their global empire should continue to stick around. But when it came down to taking their relationship forward with the rest of Europe, many Britons rejected the idea.
Details dug in history
Bretton Woods system: It all started after the Second World War in 1944 in a small town in New Hampshire in United States where delegates of 44 nations came together to define a new international monetary system. It was at this meeting that the IMF and the World Bank came into existence and all the currencies around the world were pegged to the dollar which was in turn pegged to Bullion.
After this, the trade between the countries in the western world started increasing enormously and we saw the birth of globalisation. The outlook of these western countries was more and more outward looking. Talks of working together in a cohesive manner and amalgamation were in the forefront of their scheme of things..
Thus, during 40s and thereafter, the western countries were talking the language of interconnectivity through trade, defence forces (NATO), powerplay at IMF and World Bank and the actual culmination of all this integration and globalisation was seen in the formation of European Union.
In the various stages of formation of a union among countries, European Union was just one step away from the final stage where all the countries not only have same trade and monetary policies but also the same fiscal policy. This was termed as an Economic Union and was the step towards the political unification of countries.
The time of the East
As the time passed, in the 70s and 80s, the Eastern World also started opening up and moved towards adopting more liberalised policies. China is a manufacturing hub and trade-driven economy and none of the countries here is even close to China's share in world trade. The east Asian Tigers also reaped the benefits of opening up their economy to world trade and experienced a tremendous increase in their GDP.
After the 1991 liberalisation, India has also reaped benefits of this integrated world.
What the western world was experiencing in 40s and 50s, the eastern world has been experiencing since 80s and 90s, and they have just started to see that growth trajectory. The eastern countries are yet to realise the full potential of their liberalised and more integrated economies.
Resurrecting the walls
But it seems that the western world is now in a reversal. Brexit is a clear indicator and the apparent rise of right-wing parties in other European countries represents that movement towards a more closed inward-looking policy. It has now become their territory, their national policy, their sovereignty. From 'our' the world is moving to 'my'. Thus, there is a clear swap in the positions of the western and eastern countries.
The fall of the Berlin wall was not just a physical bringing down of the wall but it spoke more to the idea of people in Europe agreeing to share their wealth.
But this backward trend is connected to the 2008 crisis, the result of which various European countries went into a second recession with their sovereign debt crisis. The debtor countries found themselves in deep trouble and were and still are forced to the terms and conditions of the surplus countries. And the entire paradigm about looking at national interests has started taking precedence.
The incoming refugees from Syria and the terror attacks in Paris and Brussels added fuel to the already precarious situation, with the inward-looking mindset gaining more and more momentum.
Maybe we should have listened to Keynes in 1944.
At the Bretton Woods there were two proposals, one by Keynes and other by Henry White. The one that Henry White presented won. So this is probably a good time to ponder on what Keynes said.
Keynes proposed a new currency called Bancor. He said that during the boom period a deficit nation takes more and more debt to fuel growth and a surplus nation also gives it. However, when this phase gets over and things start tumbling then the entire onus lies on the debtor nation and not the surplus one. So he proposed setting up of ICU: International Clearing Unit.
Keynes proposed that any country racking up a large trade deficit (equating to more than half of its Bancor overdraft allowance) would be charged interest on its account. It would also be obliged to reduce the value of its currency and to prevent the export of capital. But -- and this was the key to his system -- he insisted that the nations with a trade surplus would be subject to similar pressures.
Any country with a Bancor credit balance that was more than half the size of its overdraft facility would be charged interest, at a rate of 10%. It would also be obliged to increase the value of its currency and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations' deficits.
Doubt that world will be able to stop the reversal
When Europe was in upheaval after Brexit, US Republican Presidential candidate Donald Trump landed in Scotland and declared that America wants itself back too. The challenge is that globalisation has been slow in the East and it is only now that countries like India may be ready to ride the wave. But as the western economies go into a recession, they may be scrambling themselves and not in a position to even deal with the growth in the East. With a world in conflict, the eyes are going to be off the idea of amalgamation, and people will focus on protecting whatever they have, and this move by the UK is just that.