Brexit waters are uncharted, so the first thought is that no one can possibly know the final outcome.
Some further thoughts:
- The effects on the US should not be major or sustained.
- UK itself will probably have a short recession, but not a big long-term dip.
- Europe will have to re-think its non-economic integration.
- Russia and China, while emboldened, will likely see few gains.
- Markets, while initially down, will likely recover within six months or so.
- London, as a financial center and as a repository for foreign money, may well face the biggest upcoming tests.
This last point, while not crucially important to anyone else, may be the most significant. Not because London’s role as a center of finance or money laundering is crucial to the world economy — it is not. Rather, because the Brexit vote reflected similar patterns elsewhere that could have a continuing major impact.
- A rural-urban divide.
- A generational divide.
- Rebellion by working-class folks who feel government, financiers and globalization have failed them.
- Anti-immigration sentiment — or at least heightened debate over who and how many immigrants to let in.
- A threat to the direction public and private elites have been headed.
These issues are major. Centrifugal forces are pulling Western countries apart. Things that have been taken for granted, like expansion of individual autonomy, or multiculturalism versus the traditional concept of the melting pot, and free trade, will have to be faced squarely.
Indeed, the question of “national character,” or even of whether countries like the UK, Spain, Belgium and Italy should each be split into two or even three smaller countries, will need to be dealt with. Scotland’s pro-EU vote is a leading indicator.
These are amazing days. Unfortunately, many of the emerging actors will be demagogues or even Fascists, whose shrillness will make rational discussion of these vital issues very difficult.
“May you live in interesting times” goes the old Chinese proverb. We do. Let’s just hope the Brexit vote doesn’t herald an era of “too-interesting times.”
Richard Levy, HBD’s President, travels to the UK several times annually.