A Brexit reminder of when things fall apart: Don Pittis

Anyone who thinks strong business interests will force Britain to stay in the European Union should look at what people were saying before the First World War. 

Even when it seemed obvious that war was on its way, European commentators were quoting theorist Norman Angell who, in a paraphrase from The Economist, said "the commercial links between the great powers were so close that war would be a disastrous option."  

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And Angell was not wrong. When war was declared, stock markets across Europe and around the world closed. Markets that reopened plunged to levels not seen again until the Great Depression 20 years later.

Failing to change minds

The current argument that Britain's exit from the EU, now widely known as Brexit, will wreck the British economy does not seem to be changing minds.

Certainly the biggest financial interests have come out in favour of remaining part of the EU. London's giant banks, the markets and the people who profit from them are inevitably nervous that a renegotiated deal with Europe would damage their status as the hub of European finance.

• Brexit a risk to U.K. economy: Mark Carney

Despite the predictable reaction to his comments from the pro-Brexit politicians, the Bank of England's governor, Mark Carney, has called leaving the EU "the biggest domestic risk to financial stability."

'Globalization is good'

For decades now the most influential financiers and economists have been telling us that integration and globalization are the best policies. They've told us that free trade and open borders will make us richer. And they've showed data to prove it.

Assuming those experts are right, the latest series of polls indicates the largest group of British voters, somewhere between 42 and 45 per cent, are voting against their own best interests.

And indeed as those poll results came out, every British person got poorer. The pound fell further and analysts say they expect more declines — as much as 10 to 20 per cent.

In the United States something similar is going on as business leaders worry over the increasing chances of a win by presumptive Republican presidential candidate Donald Trump.

• Trump faces bitter opposition from business fundraisers 

According to a Financial Times headline this week, "The economic consequences of a Donald Trump win would be severe."

Former U.S. treasury secretary and Harvard economist Larry Summers has predicted that electing Trump would lead to a global recession and a vicious trade war.

Building walls

Yet the very policies that would cause such damage, cutting trade with Mexico (or "building a wall"), reneging on debt, blocking imports from China and Canada to "make America great," are some of the ideas that make Trump popular.

After decades of watching the world grow closer together, there are signs we are now seeing the opposite.

Instead of integration, it seems an increasing number of people are willing to vote for disintegration. Instead of globalization and free trade, there is growing support for localization and protectionism.

The rhetoric from people like Nigel Farage, head of the U.K. Independence Party, seems to indicate a backlash against homogenization, against a single set of laws for large "artificial blocs," against European expansion. He says Brexit is just the first step toward the demise of the entire European Union. And he says that's a good thing.

Integration, then disintegration

Historically it's not a new phenomenon. Long periods of integration have frequently been followed by disintegration.

The Roman Empire is the poster child for the phenomenon. A shared system of trade, money and transportation, shared culture, shared law, and a lingua franca built over centuries gradually fractured and crumbled. The British Empire fractured, and one of the fragments, the United States, itself barely resisted fragmenting.

The Ottoman and Austro-Hungarian empires self-destructed during the First World War. Yugoslavia, growing out of that collapse, also spun apart in a series of bloody wars that may not be over yet.

The Soviet Union flew to pieces, which strategic analysts say may have started a trend. Iraq has effectively separated into a Kurdish-controlled region separated from the traditional capital Baghdad by the military forces of ISIS rebels. Syria is similarly flying apart, creating a refugee exodus.

Each disintegration has a set of reasons: Illegitimacy of the existing government. Economic dissatisfaction that leads to a search for new solutions. A perceived conflict in values between component groups. A crumbling of the central power that coerces the groups to stay united.

Uncanny forces

But whether by referendum or by the force of political will, the idea that rational economic decisions will win the day has been repeatedly disproved.

I was recently glancing through the book International Economic Disintegration by Swiss economist Wilhelm Ropke, begun just before the Second World War but published only in 1942 while Europe was bombing itself into economic ruin.

"The uncanny, nerve-racking thing about the present situation is that not a single proved formula for interpreting experience holds good any longer," Ropke wrote in the book's conclusion.

Perhaps disintegration is powered by uncanny forces against which conventional arguments by business leaders are powerless.

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​More analysis by Don Pittis