Brexit Is a Disastrous Experiment in Deglobalization

July 1, 2016 9:00 AM

Brexit is an experiment in deglobalization. As the pound tanks and British politics implode, investment will dry up and the entire United Kingdom will almost certainly plunge into recession. The country may well break apart as Scotland and perhaps Northern Ireland desperately seek to avoid the experiment. The outcome should dramatically discourage other Europeans, the United States, and anyone else contemplating their own versions of deglobalization. 

The European Union (EU), albeit at the regional level, represents the most ambitious foray into globalization in human history. It has essentially eliminated national borders in economic terms, creating a truly single market and even a common currency for most of its 28 members (though not the United Kingdom). It interacts as a single unit with the rest of the world on trade and some other economic issues.  

Like all globalization, and technological advance and other dynamic economic change, the EU provides substantial overall benefits for each of the participating countries while imposing adjustment costs on a minority within each.  For the United States, for example, the benefit-cost ratio of globalization has been found to be about 20:1. By withdrawing from the EU, if they actually go ahead with it, Britain will give up many of the gains it has been enjoying, mainly in terms of unfettered access to the world’s largest market, while recovering a few of the modestly offsetting losses that apparently motivated the “leave” vote. Its competitive position in Europe, and vis-à-vis Europe in the rest of the world, will fall sharply. As a result, investment in Britain by both domestic and especially foreign firms will also fall sharply. 

No country has ever succeeded economically without integrating into the world economy.  Those that have rejected globalization have failed miserably: Compare North Korea with South Korea and the Soviet Union with China.  The failure of the Middle East as a region can be largely traced to its deglobalization in a globalizing world.

Britain will of course continue to participate actively in the world economy even after Brexit.   At the margin, however, and whatever new trade agreements it may be able to negotiate, the country will be withdrawing from globalization and moving against the tide of history.  Companies that vote with their investment capital, and entrepreneurs and skilled workers who vote with their feet, will go elsewhere.  Scotland, Northern Ireland, and maybe even Wales will make every effort to escape these inevitable implications.

Some observers believe that Brexit will encourage and maybe even promote the success of anti-globalization forces elsewhere, including the United States.  The opposite outcome is far more likely as the impact of the British experiment becomes apparent.  The economic toll will encompass recession, possibly steep in the short run, and eroding competitiveness and real incomes over time.  In this unique case, political dissolution is probable too.  It is highly unlikely that anyone else will want to emulate Britain’s revealed preference for self-immolation.