A world in shock

Saturday, 25 June 2016 00:00 - - {{hitsCtrl.values.hits}}

The Brexit vote is in and the world is in shock. The unprecedented decision by the United Kingdom has sent markets into freefall and left many nations wondering about their future.

The vote will have lasting impact on the world but the actual fate of the EU remains to be seen. Britain was the second largest economy in the EU and the largest financial sector of the region that has to now evolve to the new set of circumstances.

The costs will be substantial. Economists, business leaders and scholars almost universally agree that Britain’s retreat from the EU is a self-inflicted economic blunder. Recessions are contagious, and given London’s place as a global financial hub, Brexit will give Britain a particularly virulent cough. The pound’s value will likely tumble. The British treasury estimates that the nation’s households each stand to lose an average of £4,300, or about $7,000. And yet, tens of millions of voters were willing to take that hit.

Brian Klaas, a fellow in comparative politics at the London School of Economics, and Marcel Dirsus, a lecturer in politics at the University of Kiel in Germany, writes that the quintessential anti-EU voter, an aging unemployed white working-class citizen in northern England, might feel a certain solidarity with a similar Trump voter in rural America. Both have reason to feel victimised by a global economy that has left them behind. Both have concluded that the culprits are out-of-control immigration and an unresponsive government far away, in Washington or Brussels. And both have decided the answer is disengagement, solving problems alone at home rather than preventing them through cooperation abroad.

The world doesn’t work that way, and it hasn’t for decades. Ever-increasing globalisation has created an unprecedented surge in prosperity, but it has also ushered in jarring changes. The rough edges of those changes can only be overcome with more aggressive cooperation and engagement, not less. Whether it’s the risks of terrorism, the tragic flow of refugees, or economic shocks, Britain cannot solve problems alone and neither can the United States.

The solution, then, is a politics and a foreign policy that acknowledge the potency and importance of national identity while aiming to lead the world rather than leave it aside. Xenophobia will eventually fade if genuine policy reforms provide new opportunities to the victims of globalisation. The world needs leaders on both sides of the Atlantic who heed the legitimate fears of their citizens and at the same time explain that solutions will come from standing together with other nations rather than standing alone.

For South Asia and Sri Lanka the hit will come in stages and it may not be all bad. Analysts are already predicting that Brexit will keep the US Federal Reserve from another rate hike, which means investments in equity markets in developing countries will remain, bolstering their economies. India’s Central Bank Governor has already pointed out that the decoupling of the EU and Britain can take years and therefore after an initial slump investment will continue to flow into the sub-continent. Exports could be hit as companies may have to relook at their supply chains but hopefully it will come with time for adjustment.