contributor perspectives

A Brexit Cancels out the Real Benefit of Devolution

Parag Khanna
Board of Contributors
6 MINS READJun 8, 2016 | 08:00 GMT
The United Kingdom will hold a referendum on its EU membership on June 23, but a Brexit would simply mark the completion of the former empire's decline into the strategic netherworld behind great powers.

The United Kingdom will hold a referendum on its EU membership on June 23, but a Brexit would simply mark the completion of the former empire's decline into the strategic netherworld behind great powers.

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The most powerful political force of our age is devolution. Since World War II, the number of independent states has roughly quadrupled from 50 to nearly 200. European empires, the Soviet Union and the former Yugoslavia split into dozens of independent states. From East Timor to South Sudan — not to mention Kurdistan and the Palestinian territories — the jackhammer of devolution continues its assault on sovereign unity. Not only is devolution a more universal aspiration than democracy, but as Scotland and Catalonia aptly demonstrate, democracy serves only to fuel devolution: When given the choice, cities and provinces gravitate toward more autonomy and local self-rule.

And yet, as Britain contemplates its own exit from the European Union, it risks negating the only equal and opposite dialectical force that counters devolution: aggregation. As I argue in my new book, Connectography: Mapping the Future of Global Civilization, every statelet born today seeks not to be an island adrift but to be part of larger communities that offer scale and access, resources and leverage. Scotland and Catalonia made eventual EU membership an essential pillar of their platforms. The real virtue of devolution lies not just in the banner of freedom but also in the opportunity to forge new regional and global ties in a connected world. It is no accident that European-style regional unions are widening and deepening from South America to the Far East.

The United Kingdom, meanwhile, has no such plan beyond self-righteous posturing. A Brexit would be the self-inflicted completion of the once globe-spanning empire's decline into the strategic netherworld behind superpowers and great powers, descending into the league of nations invited to global gatherings out of politeness alone. Nationalism is well and good, but pragmatism is what moves societies forward. Functional integration is how economies around the world are growing, using connectivity to perform better than their geography alone allows. Britain is not immune to this logic.

A post-Brexit United Kingdom will not become a giant Switzerland or Singapore, both of which rank higher than the United Kingdom in competitiveness, connectedness and innovation. Furthermore, these countries are not in fact the blissful deregulated islands they are often portrayed as. Switzerland has deep treaty commitments and economic ties across Europe, even as it has stepped back from joining the European Union over the same migration row that fuels Brexit fervor. For its part, Singapore is the new undisputed champion of Association of Southeast Asian Nations (ASEAN) integration, leading a Southeast Asian bloc that aspires to be an Asian European Union. It drives and profits from investment in its own region rather than running from it.

Given that eurozone anchors France and Germany are already teasing and threatening Britain over the frictions a Brexit would entail for British businesses on the mainland, the United Kingdom's prospects for leading Europe from outside the Continental bloc are less than slim.

U.K. Total Trade Value by Partner, 2015

At the same time, the United Kingdom can hardly fall back on its leadership of the Commonwealth, which is no longer even nominally coherent. Britain has no sway over wayward Zimbabwe and Kenya, and little influence over Pakistan's dual British nationals' comings and goings. It has also alienated legions of Indians with a hefty planned deposit payment for tourist visas. Former colonies such as the United Arab Emirates and India have three times as much trade with one another as they do with the United Kingdom.

Of course, Britain has also set its sights on China, attracting billions of pounds into banks (especially Barclays) and real estate, and yuan trading into London's vibrant currency markets. To be sure, the United Kingdom needs regulatory openness to attract capital into its infrastructure and industry. After all, there don't appear to be enough British backers of the so-called Northern Powerhouse from Leeds to Liverpool. But if the United Kingdom is no longer helpful to China in routing capital into Germany, Italy and other major European countries whose technologies China seeks, the most Britain will get is Chinese investors stashing cash in dilapidated properties, as they do via America's EB-5 program. In the long run, Southern European assets are cheaper and backed by long-term European liquidity, not to mention deeply intertwined with Continental supply chains. Think of China COSCO Holding Co.'s acquisition of Greece's Piraeus port.

A State Alone Loses the Strength of Numbers

The United Kingdom may continue to hold its own as a leading foreign investment destination. But Boris Johnson's oft-repeated mantra that an unshackled Britain could negotiate trade agreements with "more flexibility" is more true than he realizes, for the United Kingdom would be forced by larger powers to bend over time and again. Try to imagine London taking on Beijing in a World Trade Organization dispute the way Washington or Brussels do. In trade it's never wise to bet on David against Goliath.

In trade it's never wise to bet on David against Goliath.

Johnson has also compared a post-Brexit Britain to Canada, which has global free trade agreements but sets its own migration policy. The similarities end there, of course. Canada receives far more foreign direct investment per capita than the United Kingdom, is genuinely open to migration (especially under new Prime Minister Justin Trudeau), and actively trades and invests with its neighbor to the south, the world's second-largest economy after the European Union. Ottawa is even paying to build a second bridge between Windsor and Detroit. By contrast, a Brexit symbolizes throwing away seamless commercial ties with the only economic bloc larger than America: the eurozone.

A whiff of London-centric triumphalism certainly animates the Brexit position. After all, London belongs to the elite Formula One-like circuit of global cities that collaborate as much as they compete, with stock exchanges merging and talent flowing smoothly among them. It could well be that irrespective of the referendum outcome, London remains the most longitudinally prime city in the financial world. Where else can currency traders transact in real time with their peers in Tokyo and San Francisco on the same workday? 

But as the rest of the United Kingdom continues to wither, one must wonder whether London will want to continue propping it up at its own expense. Indeed, devolution that is not followed by aggregation opens up disturbing possibilities down the line. I recall a London salon dinner in 2012 full of ambitious, swaggering chaps. The theme? "Resolved: London Should Secede From the United Kingdom."

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