Pankaj Ghemawat is global professor of management and strategy at NYU Stern and Rubiralta professor of global strategy at IESE Business School.
The votes are in, and Britons on Thursday voted to leave the European Union. While the immediate results—in terms of exchange rates and stock market indexes—are overwhelmingly negative, those are based on expectations that turned upside down within a few hours. The real consequences are still hotly debated, and will continue to be in the short run. But over the next few months and years, much will be learned about the consequences of such breakups. So one silver lining is that Brexit is an experiment, albeit an oversized one, from which other polities might be able to learn.
The learning opportunities arise, in part, because no state has ever withdrawn from the EU. Greenland, part of Denmark, did vote to leave the EU’s predecessor, the European Economic Community (EEC), in 1985. But as former World Trade Organization Director General Pascal Lamy recently reminded me, 50-60,000 people, whose major export is fish, and who continue to be associated with the EU by virtue of their relationship with Denmark, can’t be counted on as a decisive experiment.
Algeria’s exit from the EEC in 1962, upon achieving independence from France, is discounted as well, on the grounds that it was preceded by eight years of violent conflict, and that in any case, it was a decolonization episode rather than dissolution of a relationship with equals. As a result, estimates based on more than 100 independence events since 1900 indicating, on average, a two-thirds drop in trade intensity are treated as irrelevant to the current situation.
The U.K. makes for a particularly strong test case because if any EU member could overcome withdrawal symptoms, it should be the one.
While the EU accounts for about one-half of the U.K.’s trade, the latter is actually more broadly distributed than any other EU member’s. In fact, based on the DHL Global Connected Index, which I prepare biennially, the UK has the second broadest pattern of engagement in the world in terms of total trade—merchandise plus services—and ranks first in the world when one expands definitions of connectivity to include capital, information and people flows. Clearly, the English language, colonial legacies evident in a “Commonwealth effect” and the seafaring traditions that underpinned them have offset some of the focusing effects associated with being part of the world’s most integrated region.
Learning from the UK experience can be useful more broadly because much of the rest of Europe also exhibits splittism at multiple levels. At the EU level, Brexit has encouraged similar rumblings in member states—even Germany, which is thought by many to be the first among equals within the bloc. At a country level, Catalonia, where I live part of the year and can testify about from personal experience, is desperately seeking a divorce from Spain and similar movements can be identified within at least a dozen other EU members. And there are even rifts within rifts: thus if Scotland does now make good on its threat to secede from the UK, Orkney, Shetland and the Western Isles may revive their demands to cut their ties with Scotland.
And splittism isn’t confined to Europe. Think of the “beautiful wall” that Donald Trump continues to insist he would build on the border with Mexico. It isn’t just about cutting off flows of immigrants: tariffs on imports are less tangible but no less threatening to the cause of integration. Which is, of course, Trump’s whole point.
But exploiting the opportunity to learn from Brexit will require others to restrain, for now, their own splittist impulses. If, instead, they react to Brexit by themselves rush towards the exits they have been eyeing, the potential from learning from this high-stakes experiment will be entirely wasted.
