2016: A Year Of Political Revolt

There's no silver bullet to this and neither Brexit nor Donald Trump will be able to reverse this trend completely. It remains to be seen if it can even be stymied in the slightest. For all the talk about immigration and outsourcing, there's little airtime devoted to mulling over the wave of automation that is about to engulf the developed world over the next decade.

It is probably a statement of the obvious that 2016 will be noted in history for two political events: Brexit and the election of Donald Trump.

It was a miserable year for the polling industry, which for the last decade had been a reliable predictor of election outcomes. This year, however, the polls were well wide of the mark in their forecasts. They failed to predict the victory of Donald Trump, in some cases getting it spectacularly wrong. In the state of Wisconsin, almost every poll gave Hillary Clinton a lead in excess of ten percent. Donald Trump went on to win the state.

Then there was Brexit. Although the polls oscillated between a Leave and Remain victory, most of the polls on the week of the vote forecast a fairly comfortable victory for the Remain campaign.

For the most part, both acts have been billed as a people's rebellion against their political masters. Despite the 'Remain' and Clinton campaigns considerably outgunning their opponents both financially and in terms of their ability to wheel out celebrity 'luvvies', their rather complacent expectation of support was rejected by their respective electorates.

Seeing this through the lenses of the "anti-establishment" narrative is a simplistic diagnosis, however. Although it is true that both elections rejected the prescribed medicine from most of the mainstream media and most of the political establishment, it supposes that a distrust of politicians is a new phenomenon when that plainly isn't the case.

In reality, the one thing both elections had in common was a rejection of the economic orthodoxy that has underpinned the last political generation of thinking. It was also, in part, a rejection of the idea that the most important political objective should be growing the economic pie as measured by GDP per capita.

In the case of the US, Trump deployed with lethal force an opposition to the economic orthodoxy championed by the Clinton's. Although Hillary Clinton tried to downplay her involvement in global trade deals, there was no escaping the fact that the North American Free Trade Agreement (NAFTA) came in to force under the Presidency of Bill Clinton.

Despite the assertion that tearing down barriers to trade with Mexico and Canada has added 0.5% to annual GDP growth for the US, Donald Trump was elected on the back of a pledge to significantly scale back - or even tear up- the trade agreement with Mexico. This was in no small part due to claims it has seen over one million jobs leave the US in favour of cheaper labour in Mexico.

Meanwhile, across the pond in the UK, the electorate was told at great length how membership of the EU, through membership of the Single market, was worth anything up to 5% a year of GDP. Despite this, they decided that cultural factors and preserving national identity and sovereignty was ultimately worth more.

On the face of it, it makes no sense to an economics professor or pollster. Or even to Bill Clinton, whose campaign manager famously retorted "the economy, stupid" when asked what the most important issue in an election was.

What both elections had in common was a desire for a return to the local over the global. Whilst that doesn't mean completely rolling back the frontiers and disengaging from the world, it was an expression of an overriding will to return to the principles of the nation state. In other words: yes to free trade, but on the pretext it brings as many jobs as it sees going out in the other direction and certainly not at the expense of sovereignty.

It's not hard to understand how we arrived at this point. The expansion of free trade in the case of the US and further integration with the EU in the instance of the UK has been a contributory factor in a boon for corporate profits. In the last five years alone, corporate balance sheets have staged a remarkable recovery from the financial crisis of 2008. In the US, corporate profits have grown 15% whilst UK companies have seen a 40% uptick in their reported post tax profits.

The tale for the average citizen's experience of the benefits of an ever more integrated world paints a different picture, however. Looking at median earnings alone, the inflation adjusted median earnings for a US worker are actually lower now than they were in 1999. The same is true of the UK, where median earnings have only just recovered to what they would have stood at in 2003 after factoring in inflation. In other words, the perceived economic benefits haven't spread much further than company balance sheets.

But it's not just been a question of money in the pocket. Companies have become hollowed out as functions have been outsourced or automated, high streets and towns have been gutted of their traditional community "hubs" and the younger generation have upped sticks and moved after University rather than returning to their home towns.

In both cases, free trade and integration has led to a stampede to 'knowledge economies' in a bid to retain a comparative advantage in high value added industries. This has opened up its own fissures, the most evident of which is the disparity in earnings. While a University educated male aged 25-34 could expect to earn 22% more than someone the same age without a degree in 1972, they could expect to earn 70% more by 2015. It wouldn't be far-fetched to believe this has stirred resentment from a section of society that feels their own jobs at more risk than ever, whilst watching their community get poorer.

There's no silver bullet to this and neither Brexit nor Donald Trump will be able to reverse this trend completely. It remains to be seen if it can even be stymied in the slightest. For all the talk about immigration and outsourcing, there's little airtime devoted to mulling over the wave of automation that is about to engulf the developed world over the next decade.

One thing is for certain though. 2016 was a year of open revolt, and the expectation of drastic change is high. Politicians on both sides of the Atlantic had better hope they have the answers.

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