Why did Donald Trump beat Hillary Clinton in the 2016 US presidential election? The main reason is that globalisation, which has done wonders to living standards in much of the Third World, and which has also hugely benefitted the political and economic elite in the West, has turned out to be a lousy deal for too many other people living in most western countries, particularly the USA and the UK
This did not need to happen. It occurred because of policies adopted in the West which could have been different, making the benefits of trade liberalisation much more evenly spread than they have been. What were the policies which did the damage? In the UK’s case it was a double whammy.
First it was the adoption of neoliberal policies during the Thatcher era, when interest base rates of 15 per cent forced up the exchange rate by 60 per cent between the late 1970s and early 1980s. This was then followed by liberalising UK asset purchases by foreign interests in the late 1990s and the 2000s, this time under a Labour administration, on a scale not replicated anywhere else in the world. The pound was then pushed up even further. The result was to make the UK less and less competitive with the Far East, as the cost of producing almost anything here soared above what it was elsewhere.
The consequence was the decimation of UK manufacturing industry. As late as 1970, almost a third of our GDP came from manufacturing. By 1990 this ratio had gone down to 20% and now it is barely 10%. This matters hugely for three main reasons.
The first is that productivity increases are much easier to achieve in manufacturing than they are in services so the smaller any country’s manufacturing base is, the more slowly it is likely to grow.
The second is that most of our exports are still goods rather than services, and because our industrial base is now so weak, we do not have enough to sell to the rest of the world to pay for our imports. The result is balance of payments deficits year after year, sucking demand out of the economy and making economic expansion more and more difficult to achieve.