Much ink will be spilled analyzing the results of the U.K. referendum on whether to leave the EU. Some will highlight the xenophobic edge to the “leave” campaign, and how the Brexiteers resorted brazenly to a politics of fear to exploit the public’s worries over immigration.

Not surprisingly, Turkey became the natural pick to serve as the Brexit campaign’s boogeyman. According to the “leave” campaign’s material, Turks are inherently prone to violence and criminality. If Britain remains in the European Union, the thinking goes, it will soon be overrun by flocks of Turks. Former Mayor of London Boris Johnson—one of the staunchest advocates of Brexit—remarked cynically that “he [would] not mind whether Turkey joins the EU, provided that the U.K. leaves the EU.” He has unabashedly stoked fears that EU membership means uncontrolled immigration into Britain, and that Turkish membership to the EU would only make that problem worse. 

Stoking fear of Turkey-the-boogeyman is a longstanding pastime in Europe, stretching back centuries. Turkey’s candidacy for the European Union breathed new life into the practice. When Turkey started to undertake reforms that set the country towards accession negotiations, it was met with mighty resistance in Europe—confirming the deep-seated skepticism in Turkey that “objective” criteria, also applied to Central and Eastern European countries, would not apply to it. The image of the “terrible Turk” appeared once again: to warn the European public of an impending Turkish invasion, and therefore to keep Turkey out of the European Union. 

Old habits die hard

It’s ironic that Boris Johnson—a great-grandson of an Ottoman minister and someone who has previously spoken proudly of his Turkish heritage—would succumb to Turkey-the-boogeyman scare tactics. But he has high political ambitions, which include chipping away at Prime Minister David Cameron’s leadership of the Conservative Party, and Johnson now seems to prefer pandering to populist, euro-skeptic forces. In an attempt to secure his right-side flank, Cameron (who had long supported Turkey’s EU membership, as long as the necessary conditions were met) had a sudden conversion just a few days ago and said that Turkey’s prospects for EU membership before the year 3000 were slim. So he too apparently believes, in some sense, that Turkey is a boogeyman—so Turkey has become a punching bag in the internal Conservative Party power struggle too. 

Mirror images?

It goes without saying that Turkey is not in the shape that it was a decade ago. It is no longer the darling of the international community with an enviable growth rate, and its soft power has waned dramatically. Instead, both its democracy and its economy are limping along, at best—though, to be fair, its economy is growing faster than the EU’s. And Turks are no strangers to the kinds of politics of fear we’ve seen in the U.K.—their increasingly authoritarian and repressive leader, President Recep Tayyip Erdoğan, is adept at stoking fear too. Meanwhile, he’s assumed a defiant posture towards Europe, threatening, for example, to lower the drawbridge on Greece and Bulgaria and unleash a repeat of last year’s migration crisis. These kinds of threats, of course, only bolster voices like Boris Johnson back in Britain. 

It’s quite remarkable that at the same time as prominent figures in both the “leave” and “remain” campaigns are engaging in forms of Turkey-bashing, they apparently borrow lexicon from the Turkish leader himself—employing a language of intolerance and xenophobia. This could not have been—and indeed, was not—what early promoters of European integration like Winston Churchill envisaged for their continent. They had seen the horrors that could come when politics of fear spun out of control. 

Regardless of the British referendum results, there has already been much damage inflicted on the West’s liberal image. This is why when ink is spilled in the coming days, discussing the vote’s results, we must also take a hard look at eroding liberal democratic standards and values. The very foundations of European—including British—democracies are being shaken: What will this mean for the European integration project? It seems surprising today, but there was actually a time when there were European leaders who pushed for Turkish membership in the EU—yes, Turkey the boogeyman—in order to strengthen this very project. Times and sentiments, as well as conceptions of democracy, have obviously changed. Welcome populism, welcome politics of fear, and pity to those Turks that genuinely believed in Europe’s strength as a bastion of liberal democracy and integration.

Like many Brits, I’m reeling. Everyone knew that the "Brexit" referendum was going to be close. But deep down I think many of us assumed that the vote would be to remain in the European Union. David Cameron had no realistic choice but to announce that he will step down.

Mr. Cameron’s fall can be traced back to a promise he made in the 2010 election to cap the annual flow of migrants into the U.K. at less than 100,000, "no ifs, no buts."Membership in the EU means free movement of labor, so this was an impossible goal to reach through direct policy. I served in the coalition government that emerged from the 2010 election, and this uncomfortable fact was clear from the outset. I don’t share the contents of briefings and meetings from my time in government (I think it makes good government harder if everyone is taking notes for memoirs), but my counterpart in the government, Mr. Cameron’s head of strategy, Steve Hilton, went public in the Daily Mail just before this week’s vote.

Steve recalled senior civil servants telling us bluntly that the pledged target could not be reached. He rightly fulminated about the fact that this meant we were turning away much more skilled and desirable potential immigrants from non-EU countries in a bid to bring down the overall number. What he didn’t say is that the target, based on an arbitrary figure, was a foolish pledge in the first place.

Mr. Cameron was unable to deliver on his campaign pledge, and immigration to the U.K. has been running at about three times that level. This fueled anger at the establishment for again breaking a promise, as well as anger at the EU. In an attempt to contain his anti-European right wing, Mr. Cameron made another rash promise: to hold a referendum.

The rest, as they say, is history. And now, so is he.

Immigration played a role in the Brexit campaign, though it seems that voters may not have made a clear distinction between EU and non-EU inward movement. Still, Thursday’s vote was, at heart, a plebiscite on what it means to British. Our national identity has always been of a quieter kind than, say the American one. Attempts by politicians to institute the equivalent of a Flag Day or July Fourth, to teach citizenship in schools, or to animate a “British Dream” have generally been laughed out of court. Being British is an understated national identity. Indeed, understatement is a key part of that identity.

Many Scots, Welsh and Northern Irish feel a much stronger affinity to their home nation within the U.K. than they do to Great Britain. Many Londoners look at the rest of England and wonder how they are in the same political community. These splits were obvious Thursday.

Identity politics has tended in recent years to be of the progressive kind, advancing the cause of ethnic minorities, lesbians and gays, and so on. In both the U.K. and the U.S. a strongly reactionary form of identity politics is gaining strength, in part as a reaction to the cosmopolitan, liberal, and multicultural forms that have been dominant. This is identity politics of a negative kind, defined not by what you are for but what you are against. A narrow majority of my fellow Brits just decided that at the very least, being British means not being European. It was a defensive, narrow, backward-looking attempt to reclaim something that many felt had been lost. But the real losses are yet to come.

Editor's Note: This piece originally appeared in the Wall Street Journal's Washington Wire.

Economist Albert Hirschman’s marvelously perceptive little book with big ideas written in 1970 titled “Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States” provides a cornucopia of insights into understanding Brexit and the current state of global governance.  When it emerged American economist Kenneth Arrow marveled at its extraordinary richness, and political scientist Karl Deutsch, in his presidential address to the American Political Science Association, called it an “outstanding contribution to political theory.”

Economists assume exit to mean dissatisfaction with an organization’s product or the service leading to decline in demand for it. The value of exit lies in the certainty it provides in terms of the relationship between the customer or member and the firm. Political scientists think of how a firm handles its response to customer dissatisfaction as the exercise of voice by stakeholders. The value of voice is that it can lead to reform that ultimately determines the firm’s revival, an idea also advanced by scholar Clayton Christiansen in his book “The Innovator’s Dilemma.” An understanding of the conditions under which exit and voice are exercised requires the incorporation of the concept of loyalty. Loyalty makes voice more probable and exit less likely. But loyalty does not by itself make the exercise of voice more effective. That depends on the extent to which customers or members are willing to trade off the certainty of exit against the uncertainties of improvement in the deteriorating product, and their ability to influence the organization.  

Applying these ideas to Brexit suggests that the option of a U.K. exit was made more likely because of the limited voice of the U.K. in achieving reforms, coupled with the fact that Britain’s loyalty to the European Union was mixed at best. Its self-perception as “special people” was accompanied by long-standing skepticism about foreigners, including other Europeans.

Some have attributed Brexit to misjudgment by Prime Minister David Cameron about holding a referendum, poor management of migration policy by the EU including procrastination and downright misjudgment on migration, and they have termed the historic vote as nothing short of the beginning of the end of the post-World War II institutional frameworks, including the Bretton Woods institutions. They fear that the longest and most prosperous period of sustained peace in modern human history, enabled by post-war global architecture, may have come to an end.

The Economist is one proponent of this view, describing Brexit as multiple calamities. The British economy and polity are wildly off the rails, the newspaper notes. The prime minister has resigned with no obvious successor. The leader of the opposition is struggling to survive a coup. The pound hit a 31-year low against the dollar and banks lost a third of their value before stabilizing. Meanwhile there is talk in Scotland and Northern Ireland of secession.

But my own English friends, some of whom favored Brexit, talk about the high tax payments to the EU, oppressive overreach of the EU bureaucracy, and the fear of open borders leading to uncontrollable immigration from Eastern Europe, Turkey, and the Middle East. In short they see EU membership as all pain and no gain. On the surface Brexit has all the flavors ranging from nostalgia of self-rule to xenophobia.

There are already signs that exit is becoming the preferred option in various global governance organizations. Global loyalties are split, not just among great powers, but also between developed and developing countries. Voice and reform have not been effective.

Hirschman mentions leadership and timely action in sharing power with the next generation as a behavioral trait (often found in the animal kingdom) favoring voice. He contrasts that with exit, which he describes as a human behavior which assumes markets, including political markets, will solve problems.

Hirschman’s chapter “Exit and Voice in American Ideology and Practice” helps us to better understand the U.S. role in global governance. He notes that exit has been accorded “an extraordinarily privileged position in the American tradition” founded in its very creation as a land of immigrants, who, he reminds us, were opting for exit.  Indeed, like in Britain, “the neatness of exit over the messiness and heartbreak of voice” has persisted throughout U.S. history. In his last chapter, “Elusive Optimal Mix of Exit and Voice,” he does not come up with a recipe for some optimum mix of the two, nor does he recommend each institution has its own optimum mix, instead arguing conditions are seldom ripe for their optimum and stable mix—although it is possible to say there is deficiency of one or the other at a given point in time.

Today, it seems that the dominant mode of the post-World War II era, namely voice, is plainly revealing its inadequacy, so the other mode, exit, will eventually be injected once again.

Having had a leading role in founding the global architecture of the United Nation, Food and Agriculture Organization, and Bretton Woods institutions, the U.S. has had a strong voice in and loyalty to the Bretton Woods institutions as well as leadership roles commensurate with its historic roles. U.S. loyalty to the U.N. outside of the Security Council has varied among administrations, since voice in U.N. organizations is distributed more equally. The U.S. has opted for exit from specific U.N. organizations from time to time when it has disliked the dissenting views of other members. 

Others are also choosing to exit. China’s slightly increased shares in the International Monetary Fund and the World Bank after the financial crisis are nowhere near its weight in the global economy, thanks to European reluctance to accept a reduced voice. China and other emerging countries have exercised a partial exit option by establishing the Asian Infrastructure Investment Bank and the New Development Bank to meet the investment needs of developing countries.The U.S. considered the establishment of the two as a threat to its leadership and to the Bretton Woods institutions, viewing the acts as verging on disloyalty, whereas most U.S. allies have embraced membership in both. And yet the Asian Infrastructure Investment Bank is following on the footsteps of the Bretton Woods institutions as regards norms and rules.

To strengthen global governance requires strengthening “voice” and weakening incentives for “exit” from the U.N. and Bretton Woods institutions and other forums of global governance. The U.S. needs to also lead the effort to increase the rewards and reduce the cost of exercising voice. This would be a timely reminder, when politics seems to thrive on divisions, that leadership means forging inclusive institutions that serve all members. 

Brexit has little direct effect on the Chinese economy though it does increase the risk of financial volatility. In the long run it is hard to see it as anything but a plus for China as the West continues to decline and China continues to rise.

In the immediate aftermath of the Brexit vote, stock markets all over the world tanked. The interesting exception was China: The Shanghai market fell 1 percent on Friday and then more than recovered it on Monday. In the short run, Brexit is a modest negative as Europe’s gross domestic product (GDP) and trade are likely to grow less rapidly, and the EU is China’s largest trading partner. But the Chinese economy is simply not that export-oriented anymore. In the aftermath of the global financial crisis, the contribution of net exports to China’s GDP growth has averaged around zero. China initially made up for lost external demand with a massive stimulus program aimed at investment. This has now led to excessive capacity in real estate, manufacturing, and infrastructure. As a result, investment growth is slowing (see figure below). But China’s GDP growth has held up well because consumption is now the main source of demand. It consistently delivers more than 4 percentage points of GDP growth and its contribution has been on an upward trend.

China has developed a virtuous circle in which wages are rising at a healthy rate (more than 10 percent over the past year), consumption is growing, consumption is mostly services so the service sectors expand, and they are more labor-intensive than industry so sufficient jobs are created to keep the labor market tight. There are plenty of things that could go wrong, but maintaining consumption is the big challenge for China, not the external sector.

Another feature of China’s new growth pattern is that there is a steady outflow of capital as investment opportunities at home diminish. The U.K. had been one of the favored destinations for China’s outward investment, seen as a welcoming location that could be used as a jumping off point for the rest of Europe. Chinese firms will now need to rethink that strategy but this should not be too difficult an adjustment. The United States has been the destination for the largest share of China’s overseas investment and it is likely that that trend will strengthen in the wake of Brexit.

Brexit does complicate China’s currency policy. The dollar and the yen have strengthened while the pound and euro decline. In past global crises, China has been a source of stability but the yuan fixing on Monday suggests that the central bank does not want to follow the dollar up if it is going to keep rising. Ideally they would like relative stability against a basket. There continues to be a risk that this policy will excite accelerating capital outflows so in that sense financial risks have increased somewhat. But probably the central bank will be able to manage the capital outflows so that the trade-weighted exchange rate is stable.

A U.K. no longer in the European Union will presumably be anxious to strengthen its ties with China so it may well be willing to make compromises on market-economy status and investment deals that a unified Europe would not have made.

Finally, from a larger geostrategic perspective, it would seem that China is the big winner from Brexit. Europe is likely to be a less influential player on the world stage and will be absorbed with internal issues of negotiating the British exit, controlling immigration, and keeping the periphery inside the eurozone. The United States is also likely to be distracted by these European challenges. This gives China more scope to pursue its reclamation activities in the South China Sea and to play divide and conquer with European states on various issues. For example, China would like to be recognized as a market economy, which is both symbolic and a practical matter for adjudicating anti-dumping cases. It is also negotiating investment treaties with both the United States and the EU, though so far China’s offers have not been very attractive in the sense that they exempt many important sectors from open investment. A U.K. no longer in the European Union will presumably be anxious to strengthen its ties with China so it may well be willing to make compromises on market-economy status and investment deals that a unified Europe would not have made. Brexit itself may not be that important but it may prove to be a good signal of the decline of Europe and the rise of China.

Editors’ Note: Outgoing British Prime Minister David Cameron once proudly stated that "there is no country in the Western world more open to Chinese investment than Britain." What will happen to the Sino-British relationship now that the U.K. will almost certainly leave the EU? This post originally appeared in the Nikkei Asia Review.

One of the many side effects of the June 23 British referendum on the European Union is that it will put an end to a honeymoon that had barely started less than a year ago, when George Osborne, the U.K.'s chancellor of the exchequer, declared on the eve of Chinese President Xi Jinping's state visit to Britain: "Let's stick together and make a golden decade for both our countries." Much has happened since the visit, during which Xi was feted as a guest of honor by Queen Elizabeth II at Buckingham Palace and at the British Parliament.

Over the past three years, British Prime Minister David Cameron and Osborne, (the man in effect running the country's China policy), seem to have partly anticipated the referendum's outcome by partnering with a few Asian countries outside the European Union—China especially—that would help finance some of the major infrastructure projects needed by the U.K., including nuclear plants, high-speed railways and airport infrastructure.

Now, in the turmoil following the referendum, Cameron is on the way out and Osborne's future remains uncertain. What will happen to the Sino-British relationship now that the U.K. will almost certainly leave the EU? Initial signals from China have been subdued. Foreign Ministry spokeswoman Hua Chunying recently said she believed that the impact of Brexit will be at all levels—not only in relations between China and Britain.

"China supports the European integration process and would like to see Europe playing a proactive role in international affairs. We have full confidence in the outlook for the development of China-EU ties," she said. This is a far cry from the enthusiastic comments in Chinese media on the Sino-British relationship in 2015, when Britain decided—much to the chagrin of Washington, Tokyo, Berlin and Paris—to be the first Western country to join the China-backed Asian Infrastructure Investment Bank (AIIB) and when it hosted Xi, hoping to attract massive Chinese foreign direct investment.

Cameron had proudly stated that "there is no country in the Western world more open to Chinese investment than Britain." The U.K. is currently Europe's top destination for Chinese FDI with a cumulative investment of $16.6 billion in the country since 2000 (including $3.3 billion in 2015 alone), and many memoranda of understanding signed during Xi's visit last fall. Will these be completed now that the British people have voted to leave the EU? A few months ago, Wang Jianlin, the head of China's Dalian Wanda Group—a commercial property and cinema chain operator—and a major investor in Europe warned: "Should Britain exit the EU, many Chinese companies would consider moving their European headquarters to other countries," adding that "Brexit would not be a smart choice for the U.K., as it would create more obstacles and challenges for investors and visa problems."

The Global Times, an English-language publication that is part of the Chinese Communist Party's People's Daily, was even less sympathetic to the British situation, writing in an editorial after the referendum, that the vote would "probably be a landmark event that proves Britain is heading in the direction of being a small country with few people, writing itself off as hopeless and acting recklessly."

The Beijing leadership—which uniquely went out of its way to support the Remain camp on several occasions—is puzzled by the referendum's result, which has not only created some disorder (an unbearable word in official party language) but also led to the resignation of the country's prime minister and the risk of further pro-autonomy referenda (namely, in Scotland). In the eyes of a communist party fully focused on retaining all its powers, Cameron made a serious mistake as the leader of a major country.

After all, China has no soft intentions toward the U.K. The two countries have had a complicated history. The Chinese still call the period starting in the mid-1800s— which included the British-led Opium Wars—the "century of humiliation." And it has only been 19 years since Hong Kong was returned to the motherland as a Chinese "special administrative region (SAR)." Not that the Cameron government has done very much to support its former territory: As the "golden decade" was unfolding, Hong Kong faced one of its most difficult times, with arrests of dissidents and the disappearance of some booksellers—including Lee Bo, who holds dual Sino-British citizenship and had published controversial books about Chinese leaders.

Now that British voters have spoken, chances of a backlash are running high. For a start, China is keen on keeping close involvement with the EU—its second-largest trading partner after the U.S., a source of technology transfers, and an ally in Beijing's "One Belt, One Road" projects in Europe and Asia, or in initiatives such as the AIIB and the country' Silk Road fund. In this respect China will almost certainly want to continue its close partnership with both EU institutions and individual countries, especially in Eastern and Central Europe where "One Belt, One Road" has been warmly welcomed. (Two countries recently visited by Xi, Poland and the Czech Republic, received substantial financial commitments from the Chinese president.)

London will, of course, continue to play a key role in finance as one of the world's top international trading platforms with Chinese treasury bonds issued in renminbi. Chinese visitors (including property buyers looking for fresh opportunities) will continue to flock to the city. But when it comes to being China's bridge to the EU, it is clear that Beijing will look for alternatives, particularly Germany, which is China's top economic partner in Europe. German Chancellor Angela Merkel recently made her ninth visit to China and managed to address a long list of key issues, including trade, investment and reciprocity, as well as human rights, new laws regulating nongovernment organizations and territorial claims in the South China Sea. In a powerful speech to Nanjing University students in Beijing on June 12, she stressed that the trust of the citizens can only be achieved by the rule of law, "rather than rule by law." It has been many years since British leaders have used this language in China. Even though some British politicians are now calling for a reassessment of the country's China policy, it is unlikely that the U.K. will do anything but accommodate China in order to preserve trade and investment in the post-Brexit uncertainty.

For all its openness, the "new U.K." will become less attractive market-wise. After Brexit, China will also lose a proponent of free trade within the EU—that is bad news as the 28-nation block is pondering the decision to grant market economy status to China, in accordance with an agreement under the World Trade Organization. Market economy status affects the way anti-dumping duties are used. Job-wise, the European steel industry is vulnerable. Since the adoption by the European Parliament of a nonbinding resolution against granting market economy status to China on May 12, many European politicians fear that more Chinese economic involvement in their home countries would lead to more cheap goods competing with European-made products and fewer jobs at home—hence a less favorable context for China. The chances of an EU-China free-trade agreement are becoming more remote now as the EU is more focused on finalizing a comprehensive agreement on investment with China. European companies have been lobbying for such a pact.

Although it will almost certainly make the most of an autonomous U.K. after conducting its own assessment, China does not like uncertainty—especially in turbulent times both at home and abroad. It worries about challenges against ruling parties, as well as an anti-globalization attitude that could affect its own image as a beneficiary of globalization. As for Europe, both Germany and France have strong relations with China. With their backing, the European Commission has just published an ambitious new strategy on China. It looks like the U.K. will not be part of it.

And thus, it happened, Brexit is a reality. For the first time in history, a European Union member state has decided to leave the EU. And what a member state it is. The U.K. is the EU’s second-largest economy, its main military power (along with France), a country with a global foreign policy outlook, and a pro-active approach to international crises and challenges.

The composite coalition that championed Brexit, including the openly xenophobic U.K. Independence Party (UKIP) as well as staunch free marketeers from the Conservative Party, understandably celebrates a result probably unachievable just a few years ago. So do the other parties in Europe that have made opposition to immigration, European integration, and globalization the centerpiece of their political agenda, such as the National Front in France, the PVV in the Netherlands, and the Northern League in Italy. Rightly emphasizing the similarities with his views on these issues, the Republican contender for the U.S. presidency, Donald Trump, has hailed Brexit as a “good thing.”

The rest of the world—and of the U.K.—is stunned, as The New York Times headline read on the day after the U.K. referendum. Politicians, experts, and ordinary citizens wonder about the effects of Brexit for the U.K., Europe, and the world. These are legitimate concerns. To put it bluntly, Brexit is a severe blow to the U.K., to the EU, and to the international liberal order. Worse still, it might trigger a chain reaction that could turn it into a full-blown catastrophe.

A more divided country

In just one night, the U.K. has plunged into a grave constitutional crisis. The dramatic fall of the pound vis-à-vis the dollar—it reached its lowest point in 30 years—has caused the British gross domestic product to slip below France’s in two hours. It may be that the grim predictions of the U.K. Treasury—which has warned about a U.K. going into a recession already this year – are exaggerated. Yet there is little doubt that the next prime minister—David Cameron has already announced he will resign in the next few months—will have to cope with volatile markets and a more fragile and vulnerable economy. And this is going to be just one of the excruciatingly difficult tasks he or she will be confronted with.

The Conservative Party still holds an absolute majority in Parliament, so it is from its ranks that the next prime minister will come out. Pundits are betting on a leading figure of the pro-Brexit fraction, but that is not a given. The party is divided and bitter between its pro- and anti-Brexit camps, a wound that a centrist might perhaps have a better chance to heal.

Mending intra-party fences will just be the start, however. The EU referendum has torn apart the country. It has highlighted painful splits between the older generation (overwhelmingly in favor of Brexit) and the younger one (massively against); between the province and urban centers (London, Manchester, and Liverpool all voted to stay in the EU); and between English and Welsh (who voted for Brexit) and Northern Irish and Scots (who voted against).

This latter split is likely to have political consequences. The Scottish National Party, which unsuccessfully ran a pro-independence campaign in 2014, has announced that the possibility of holding a second referendum is on the table. And Sinn Fein, the Irish nationalist party, has called for a vote on Northern Ireland’s reunification with Ireland. Post-Brexit, the U.K. faces the prospects not only of a diminished international role and economy, but territory too.

A weaker EU

The EU will also suffer from Brexit. The leaders of the other 27 member states have to now decide how they want to handle the divorce with London. As the British economy is deeply integrated with the EU’s, imposing hard terms on the U.K.—for instance, excluding it altogether from the European single market—is counterproductive. At the same time, EU leaders want to prevent that too generous terms might invite emulations from other countries. Indeed, the risk of contagion has never been so high.

Next fall, Italy may find itself in a political crisis if voters reject a constitutional reform on whose success the pro-EU Prime Minister Matteo Renzi has pinned his political career. Mistrust of Italy’s ability to run the economy will spread across markets, raising the specter of yet another eurozone crisis. This will only give Euroskeptic movements more credibility. In spring 2017, the Netherlands and France will hold national elections, while German voters will go to the polls in early fall. Marine Le Pen and Geert Wilders, leaders of the National Front and the PVV respectively, are polling ahead of pro-EU forces. Both have both promised an EU referendum if elected. German Chancellor Angela Merkel is weary and might be unable to secure a fourth mandate. If she goes, the next chancellor is very likely to be less pro-EU and tougher on immigration. Europe’s re-nationalization would then be a real prospect.

A less cohesive West

A fractured and divided EU would be a much less relevant international actor. The Europeans’ influence on global governance, international institutions, and multilateral negotiations would shrink. The United States would see Europe as a problem rather than a partner, and the cohesion of the West, as much as its leadership capacity, would dwindle. The notion that rules, institutions, and norms should govern international relations would lose in credibility, while the one that emphasizes power would gain. The functionality of the Western-promoted liberal order would be at risk.

Well-respected experts have good reasons to argue that we should not despair about Brexit. They are right, the catastrophic scenario sketched above is not a given. Yet it’s not implausible either. Policymakers in the U.K., Europe, and elsewhere should consider their next steps being fully aware that Brexit’s effects might be felt farther away than the British Isles.

Data shows that white, poor, elderly, uneducated men from rural England pulled the United Kingdom outside the European Union. Great Britain will be on its own as it will have to navigate an increasingly complex and globalized world. Europeans must wish all the very best to their British friends. At the same time, they must explore what opportunities are there to be seized. Britain’s departure presents Europeans with many exciting political prospects.

Scotland

Unlike England, Scotland voted massively in favor of remaining within the European Union. Scots now risk being dragged out of it at the hands of the English. Because of this, Scottish First Minister Nicola Sturgeon has been clear: The possibility of a new referendum for Scottish independence is on the table. Should Scotland break free of England, it would immediately be welcome back into the European Union as a sovereign and independent country. Scots would have the best of both worlds: free of English dictates and welcome in the common European family. Their economic liberalism and progressive social policies meanwhile being a boon to the rest of Europe. 

Ireland

Although far less likely than those of a Scottish scenario, major changes could be afoot in Ireland as well. Ireland is presented with a fantastic opportunity to solidify its position as an outpost of Anglo-Saxon economic dynamism within the European Union. A global language, a flexible labour market and low corporate taxation (as well as great beer) are the ingredients the Irish bring to Europe. In the coming years, they could leapfrog what will be left of Britain as America’s springboard into Europe. Meanwhile, Dublin has a fantastic opportunity to punch above its weight in international affairs (as it could and should) by acting as an honest broker between Brussels and London.

International affairs

Calls for the establishment of a common European military, of shared European representation in international institutions, and of a truly European diplomatic service have for the last 40 years regularly and to varying degrees been frustrated by the United Kingdom. Now that Britain is out, Berlin, Paris, and all other like-minded member states should seize this historical opportunity in order to tremendously boost their cooperation in all these policy areas. By doing so, Europe could achieve economies of scale, save money and resources on possible duplications, boost its global standing, and become the strong and reliable partner that the United States desperately wants it to be.

The economy

The welfare state, public services, and healthcare that most continental and northern Europeans enjoy have long been far superior to anything most Brits can even dream of. Additionally, Germany and most northern European member states boost far more competitive economies and standards of living than the United Kingdom. The historical challenge for Europeans is now to improve the performance of the southern and eastern member states of the European Union. Free from British fears of Brussels’ red tape and with the crucial contribution of small yet economically dynamic countries such as the Netherlands or Sweden, Europeans should further integrate toward a dynamic yet inclusive social-market economic model.

Democracy

Westminster gave parliamentary democracy to the rest of the world. After having made a joke out of it through a referendum marred by enormous lies regurgitated onto an ill-informed population, Britain might have given a new impetus to democratic ideals across Europe. Two elements conspire positively in this respect. On the one hand, the country that historically more than any other opposed reforms aimed at further democratizing the European Union is out of the way: Britain will no more be able to veto reforms in this direction. On the other hand, both European elites and common citizens alike might now be spurred into further democratizing the EU as a means to rescuing it.

A rather homogenous socio-demographic group of white, poor, uneducated, elderly, and rural Englishmen have pulled the rest of Britain outside the European Union. The United Kingdom might now enter a new phase in its history characterized by a further deterioration of its international standing. Europeans, meanwhile, have to catch up on the time they spent dealing with 40 years of British foot-dragging. Great opportunities are out there to be seized.

Editor’s Note: In the aftermath of the United Kingdom's vote to leave the European Union, we are left with more questions than answers. Dhruva Jaishankar writes that with all the questions about what happens next, there's a bigger question worth asking: What are the implications of Brexit for democracy? Arguably, Brexit represents the first major casualty of the ascent of digital democracy over representative democracy. This piece was originally posted by The Huffington Post.

In the aftermath of the United Kingdom's vote to leave the European Union, we are left with more questions than answers. What kind of relationship will the UK now forge with the EU, and how will that affect economic relations and migration? Will Scotland and Northern Ireland opt to leave? What is the future of British politics, given turbulence within both the Conservative and Labour Parties? Will a successful Brexit set a precedent for other EU members -- perhaps even some eurozone members-- to leave the union? What are the long-term economic consequences of the resulting uncertainty? Will Brexit even happen at all, given the absence of a clear post-referendum plan, the apparent unwillingness of 'Leave' campaign leaders to invoke Article 50 of the Lisbon Treaty, and the fact that the referendum was advisory and non-binding? Answers to these questions will make themselves evident in the coming weeks, months, and years.

[D]igital democracy... has contributed to polarization, gridlock, dissatisfaction and misinformation.

But there's a bigger question worth asking: What are the implications of Brexit for democracy? Arguably, Brexit represents the first major casualty of the ascent of digital democracy over representative democracy. This claim deserves an explanation.

When historians look back at the world of the past 25 years, they will likely associate it not with terrorism or growing inequality but with the twin phenomena of the "rise of the rest" (particularly China and India) and of globalization. Globalization involves the easier, faster and cheaper flow of goods, people, capital and information. One big enabler of globalization is the internet, the global network of networks that allows billions of people to cheaply and easily access enormous amounts of digital information. The rise of service and high-technology industries, trade liberalization, container shipping, and the development of financial markets have also been important enablers, as is the increased ease and lower cost of travel, particularly by air.

Many technology optimists have assumed that globalization would lead to the democratization of information and decision-making, and also greater cosmopolitanism. Citizens would be better informed, less likely to be silenced, and able to communicate their views more effectively to their leaders. They would also have greater empathy and understanding of other peoples the more they lived next to them, visited their countries, read their news, communicated, and did business with them. Or so the thinking went.

[L]eaders only exploit the vulnerabilities of a post-fact world. The conditions have been laid by the digital sphere.

But there has been little to justify such panglossianism. There is some evidence for a correlation between greater information, political democratization and economic progress, in that all three have advanced steadily, if at different paces, over the past two decades. But that correlation is weak. Instead, digital democracy -- the ability to receive information in almost real time through mass media and to make one's voice heard through social media -- has contributed to polarization, gridlock, dissatisfaction and misinformation. This is as equally applicable to the countries in which modern democracy took root -- in the United States and Europe -- as it is to India, the biggest and most complex democracy in the developing world.

The ascent of digital democracy around the world has some shared features. One characteristic is that access to greater information has, rather counterintuitively, contributed to a "post-fact" information environment. Nick Cohen -- speaking of British pro-"Leave" journalists-turned-politicians Boris Johnson and Michael Gove --called out their use of bold claims, their contempt for practical questions, their sneering disregard for expertise, and their transgressions of the bounds of political spin. These tactics are not all that dissimilar to Donald Trump's assertions about Barack Obama's birth certificate or immigration policies, or Subramanian Swamy's insinuations about the nationality of senior Indian policymakers.

But leaders only exploit the vulnerabilities of a post-fact world. The conditions have been laid by the digital sphere. A recent example springs to mind. There is a widespread belief on Indian social media that US presidential candidate Hillary Clinton is somehow anti-India, pro-Pakistan, and/or anti-Modi. I am no supporter of Ms. Clinton, but as someone who worked on foreign affairs in Washington and knows many of her advisors, I found these claims baffling. In fact, Clinton's political opponents (whether Barack Obama in 2008 or Donald Trump in 2016) have accused her of being too close to India, while Pakistanis often view her as critical of their country and Prime Minister Modi appears to enjoy cordial relations with her. After some inquiries, and a few tips, I managed to trace these sentiments to a single publication, a poorly sourced and misleading column that gained widespread circulation upon its release. The article's contents were deemed sufficiently credible to have now become instilled as absolute fact in the minds of many Indians active online. In a digital democracy, a lie or (better yet) a half-lie if told enough times becomes truth.

In a digital democracy, a lie or (better yet) a half-lie if told enough times becomes truth.

Another outcome of digital democracy may be a variation of what the psychologist Barry Schwartz has called the paradox of choice. Quite possibly, the greater abundance of political choice leads to less satisfaction, and the result is citizens increasingly voicing their displeasure with their available political and policy choices. The political platforms of mainstream parties rarely adhere entirely to individual voters' views. That may explain why many voters are gravitating towards parties, factions or leaders who offer the simplest messages, and project themselves as alternatives to the mainstream.

A third result of digital democracy, and one that has been better documented, is the political echo chamber. Social media, rather than creating connections with people who possess differing views and ideologies, tends to reinforce prejudices. As the psychologist Nicholas DiFonzo has noted, "Americans across the political spectrum tend to trust the news media (and 'facts' provided by the media) less than their own social group." This makes it easier for views and rumours to circulate and intensify within like-minded groups. Similar digital gerrymandering was evident in the EU Referendum in Britain and the polarization is palpable in the Indian online political space.

Finally, instant information has increased the theatricality of politics. With public statements and positions by governments, political parties and individual leaders now broadcast to constituents in real time, compromise, a necessary basis of good governance, has become more difficult. When portrayed as a betrayal of core beliefs, compromise often amounts to political suicide. Political grandstanding also contributes to legislative gridlock, with elected representatives often resorting to walkouts, sit-ins, or insults -- all manufactured for maximum viral effect -- instead of trying to reach solutions behind closed doors. Even as ease of travel allows legislators to spend more time in their constituencies, making them more sensitized to their constituents' concerns, less gets done at the national or supranational level. It is a trend that, once again, applies equally to the United States, Europe, and India.

Social media, rather than creating connections with people who possess differing views and ideologies, tends to reinforce prejudices.

The unintended consequences of digital democracy -- misinformation and discontent, polarization and gridlock -- mean that the boundary between politician and troll is blurring. The tone of democratic politics increasingly reflects that of anonymous online discourse: nasty, brutish, and short. And successful politicians are increasingly those who are able to take advantage of the resulting sentiments. Exploiting divisions, appealing to base instincts, making outlandish claims, resorting to falsehoods, and pooh-poohing details and expertise. All that could just as easily describe the playbooks of populists around the world, on the right and left: Marine Le Pen, Frauke Petry, Donald Trump or Subramanian Swamy as much as Jeremy Corbyn, Beppe Grillo, Bernie Sanders or Arvind Kejriwal.

The unintended consequences of digital democracy -- misinformation and discontent, polarization and gridlock -- mean that the boundary between politician and troll is blurring.

In all these cases, populists are willing to cross the lines that mainstream parties have flirted with, becoming forces that the centre cannot hold. US Republicans fanned the anti-immigration sentiments that first the Tea Party and then Trump are only taking to their natural conclusions, just as mainstream Democrats' economic protectionism has been seized upon by Sanders. Cameron's euroscepticism, explained away initially as constructive criticism, spiralled out of control with Brexit, just as those who pronounced the death of New Labour helped paved the way for Corbyn. Will the same one day apply in India, to the economic populism of the Congress, of which Kejriwal has become a new torchbearer, or to the chauvinism of the right, which Swamy now threatens to run away with?

Brexit is not anti-globalization so much as a product of globalization. It is also a product of democracy rather than an affront to it. But it is a democracy of a different sort, one that many of its ideological forebears anticipated. When James Madison warned of "the superior force of an interested and overbearing majority," or John Stuart Mill cautioned against "a social tyranny more formidable than many kinds of political oppression," or BR Ambedkar argued (in a slightly different context) that "political tyranny is nothing compared to social tyranny," they could just as easily have been speaking in 2016 as in 1787, 1859, or 1936. Democrats around the world may not yet be married to the mob, but plenty have been betrothed.

None of this should be interpreted as some kind of nostalgia for an older, simpler world. That world was not necessarily simpler, but it was more violent and chaotic, prejudiced and unfair, and poor and backward. It may be hard to discern amid the smoke and noise, but there are some benefits to digital democracy. Information is no longer in the hands of the few. It is easier than ever to bring injustices to light. And the same process can throw up mainstream leaders from backgrounds that are far from privileged, such as a Barack Obama, Angela Merkel, or Narendra Modi. Two of the three, Obama and Modi, rose to power on the backs of unprecedented social media movements.

But representative democracy as we have come to know it is under threat, and Brexit represents the first major casualty. Rather than fight the tide, a collective rethink is needed about how to make democracies resilient and productive in the digital age. It won't be easy.

Like many Brits, I’m reeling. Everyone knew that the "Brexit" referendum was going to be close. But deep down I think many of us assumed that the vote would be to remain in the European Union. David Cameron had no realistic choice but to announce that he will step down.

Mr. Cameron’s fall can be traced back to a promise he made in the 2010 election to cap the annual flow of migrants into the U.K. at less than 100,000, "no ifs, no buts."Membership in the EU means free movement of labor, so this was an impossible goal to reach through direct policy. I served in the coalition government that emerged from the 2010 election, and this uncomfortable fact was clear from the outset. I don’t share the contents of briefings and meetings from my time in government (I think it makes good government harder if everyone is taking notes for memoirs), but my counterpart in the government, Mr. Cameron’s head of strategy, Steve Hilton, went public in the Daily Mail just before this week’s vote.

Steve recalled senior civil servants telling us bluntly that the pledged target could not be reached. He rightly fulminated about the fact that this meant we were turning away much more skilled and desirable potential immigrants from non-EU countries in a bid to bring down the overall number. What he didn’t say is that the target, based on an arbitrary figure, was a foolish pledge in the first place.

Mr. Cameron was unable to deliver on his campaign pledge, and immigration to the U.K. has been running at about three times that level. This fueled anger at the establishment for again breaking a promise, as well as anger at the EU. In an attempt to contain his anti-European right wing, Mr. Cameron made another rash promise: to hold a referendum.

The rest, as they say, is history. And now, so is he.

Immigration played a role in the Brexit campaign, though it seems that voters may not have made a clear distinction between EU and non-EU inward movement. Still, Thursday’s vote was, at heart, a plebiscite on what it means to British. Our national identity has always been of a quieter kind than, say the American one. Attempts by politicians to institute the equivalent of a Flag Day or July Fourth, to teach citizenship in schools, or to animate a “British Dream” have generally been laughed out of court. Being British is an understated national identity. Indeed, understatement is a key part of that identity.

Many Scots, Welsh and Northern Irish feel a much stronger affinity to their home nation within the U.K. than they do to Great Britain. Many Londoners look at the rest of England and wonder how they are in the same political community. These splits were obvious Thursday.

Identity politics has tended in recent years to be of the progressive kind, advancing the cause of ethnic minorities, lesbians and gays, and so on. In both the U.K. and the U.S. a strongly reactionary form of identity politics is gaining strength, in part as a reaction to the cosmopolitan, liberal, and multicultural forms that have been dominant. This is identity politics of a negative kind, defined not by what you are for but what you are against. A narrow majority of my fellow Brits just decided that at the very least, being British means not being European. It was a defensive, narrow, backward-looking attempt to reclaim something that many felt had been lost. But the real losses are yet to come.

Editor's Note: This piece originally appeared in the Wall Street Journal's Washington Wire.

British politics is starting to resemble a bowling alley. One after another, political figures are tumbling–including the leading lights of the Brexit campaign. They sowed the wind and now are reaping the whirlwind.

First to topple was the prime minister. After the referendum, David Cameron announced that he would step down. Last week fellow Conservative Boris Johnson, the leading light of the Brexit campaign, said he would not run to succeed Mr. Cameron after his ally Michael Gove, the justice secretary, concluded, in quintessentially British style, that Mr. Johnson lacked “the team captaincy” required. Then Nigel Farage stepped down as leader of the UK Independence Party, saying “I want my life back.” Labour Party leader Jeremy Corbyn has lost the support of his parliamentary colleagues and may be next to fall.

The exit of the leading Brexiteers is a relief. The skills required to run a populist, fact-averse campaign are not the same skills needed to lead a nation. For all his mercurial talents, on full display during his colorful stint as mayor of London, Boris Johnson would have been a disastrous prime minister. The alternatives–especially Mr. Gove and Home Secretary Theresa May–are steadier souls. Both are also better positioned to unite Conservative members of Parliament and hold on until the next scheduled general election, in 2020.

Mr. Corbyn is likely to go; the question really is when. It he doesn’t, the Labour Party will break apart. In his case the departure will be only slightly about the vote to remain in or leave the European Union. Broadly, his fellow Labour MPs didn’t want him as their leader in the first place; it was the votes of more left-wing party members that propelled him to the leadership, and many see him as an electoral liability. (He is.)

There is no direct connection between Brexit and Donald Trump. But a few things can still be deduced on this side of the pond. First, Mr. Trump may succeed in making the connection tighter. His immediate announcement that the vote was about “declaring independence” reflected his sharpening political instincts. The day after the vote, Mr. Trump said: “The people of the United Kingdom have exercised the sacred right of all free peoples. They have declared their independence from the European Union. … Come November, the American people will have the chance to re-declare their independence. Americans will have a chance to vote for trade, immigration and foreign policies that put our citizens first.”

Independence is a powerful populist theme, one Mr. Trump is likely to exploit it to its fullest.

Brexit and the economic and political chaos it has already sparked are proof that no matter how crazy or far-fetched an electoral outcome appears, it can happen. Right up to the last minute, many believed that even if the vote were close, it would be to remain in the EU. At some level we just couldn’t imagine the alternative. Maybe Mr. Cameron and Mr. Corybn felt the same, which is why they were so complacent. Not so, the other side.

All this suggests the wisdom of treating every poll with a fistful of salt. Electorates are becoming more volatile and more visceral. Pollsters are getting it wrong as often as they get it right. The last general election in the U.K. is another case in point. Populist sentiment wrecks standard political models. When people are angry, they don’t weigh the costs and benefits of their actions in the usual way; that’s true in life and it’s true in voting.

It’s also why it’s risky to allow populist campaigners near the levers of power. I’ve written in this space before about the dangers of injecting direct democracy in a parliamentary political system. Think of referendums as akin to Ming vases: something rare, to be handled with great care. The British Parliament is now acting as a firebreak. The leading populists will not get the keys to 10 Downing Street.

But the United States holds direct elections for president. If Donald Trump wins in November, he will assume the most powerful office in the world. There is no firebreak, no buffer, no second chance.

Editor's note: This piece originally appeared on the Wall Street Journal's Washington Wire blog.

Britain’s Conservative Party just tore itself apart over the EU referendum; David Cameron was forced to resign as prime minister. Yet the party in meltdown is Labour. Polling out this past weekend shows Labour drawing 31%, vs. 37% for Conservatives, if a general election were held tomorrow.

The Conservative Party, showing once again its extraordinary capacity for self-preservation, is closing ranks behind new Prime Minister Theresa May. Still, how can the Tories be riding so high after such a political omnishambles? One doesn’t have to look far for an answer: the hard-left Labour leader, Jeremy Corbyn.

Asked who is or would be the best prime minister, just 16% of British voters give Mr. Corbyn the thumbs-up, compared with 52% for Ms. May. Fewer than half of Labour supporters (48%) think Mr. Corbyn would be the best PM. In her first outing in the House of Commons, Ms. May easily trounced Mr. Corbyn. (Her performance was described by the left-leaning Guardian newspaper as a “brutally brilliant” debut.) No wonder most of his parliamentary colleagues have abandoned him, forcing a leadership contest.

Again, the Conservative Party has just presided over an amateurish, disastrous session of British political history. That Tories still dominate is less about their strength than their political opponents’ weakness.

So: What will happen? I’ve just been in London, and conversations with political insiders suggest that this is the most likely scenario to play out:

First, Jeremy Corbyn, having attracted many left-wingers onto party rolls, fends off challenger Owen Smith to retain the leadership of the Labour Party.

Next, the majority of Labour MPs set themselves up as a separate parliamentary group.

As the second-largest group in parliament, these MPs would become the official opposition. They could call themselves anything–say, New Labour Party. (Read this excellent summary of the constitutional implications by Meg Russell of the University College London). This means money and status. If the anti-Corbyn MPs can’t get a new leader, they’ll get a new party.

In the meantime, a few remaining anti-Corbyn MPs stay behind and try to recapture their party. The key here, for those interested in the details, is to take control of Unite, the U.K.’s largest trade union. (Unite’s leader, Len McCluskey, is a strong supporter of Mr. Corbyn and has rallied the union’s members behind him, but his term ends soon.)

If the Labour Party, reduced to a parliamentary rump, remains in Mr. Corbyn’s hands, the next general election would be the moment when the split becomes formal. The New Labour Party would try to attract Liberal Democrat and Green supporters, as well as pro-European conservatives.

Theresa May is likely to wait until the next scheduled general election, in 2020, to face voters. But if Labour were to split, she might decide to call a snap general election to take advantage of opponents’ disarray. Either way, it seems likely the Tories would win.

Center-left parties across the globe seem to be struggling to connect with the anxieties of ordinary voters, leaving them at the mercy of populist appeals. Between populist surges and volatile electorates, we are seeing destabilizing forces at work in politics. Strong political parties act as stabilizers in stormy waters. Whatever one’s individual politics, the fate of the Labour Party in Britain, and perhaps the Republican Party in the U.S., should concern us all.

Editor's note: This piece originally appeared in The Wall Street Journal. 

The Brexit vote has stunned us. It has shaken us. It has forced upon us a set of dreadful questions none of us ever wished answers were required for:

• How do you disarticulate deeply integrated economies? How do you prevent the rancor of the U.K.'s divorce from the EU wreaking more havoc, not only in Europe but in the rest of the world? The divorce metaphor is apt here as it signals the treacherous waters ahead when the feeling of betrayal and the temptation of revenge may result in a misguided punitive approach to separation. Let's not forget that almost half of U.K.'s referendum voters chose "remain." Let's not forget that the youth in the U.K. overwhelmingly chose the EU for their future. EU leaders therefore face the ultimate test of leadership. In negotiating exit terms they must strengthen this constituency for internationalism. The U.K. needs committed internationalists. We all need them.
• How do you prevent rising nationalism from dialing back globalization? Is the "Great Convergence" at risk? In the past few decades, developing countries have emerged into the international trading system, and in opening their economies they have lifted millions from abject poverty. Will this future be off-limits to the next round of poor nations seeking to avail themselves of the opportunities of the international marketplace? Has globalization already peaked and are we to be the unlucky generation that lives through the tumultuous process of retrenchment? Are we to feel firsthand the dread that the generation of a century ago experienced when they all suffered from beggar-thy-neighbor policies?
• Are we next? Are the forces of economic nationalism and nativism that drove the referendum outcome in the U.K. unstoppable elsewhere? Will they decide the outcome of the American presidential election this fall? And if so, what happens to the international economic order?

These are still imponderable questions, but I would venture two answers: Brexit is not the final indictment of globalization, and our futures are not yet destined to be ruled by the politics of grievance.

The United States need not become the next domino to succumb to the harmful influence of populism. The parallels in the anti-globalization campaign on both sides of the Atlantic are of course unnerving:

• Anti-elitism: Fueled by the sense of economic disenfranchisement of older white voters who feel that a future of "splendid isolation" is possible.
• Nationalism: Driven by a desire to "take back" our country.
• Nativism: Spurred by strong anti-immigration feelings and rejection of a multicultural polity.

But the differences are also striking, especially when it comes to the issue of trade which commanded so much attention during both the Brexit campaign and the American presidential nomination debates. In reading the "Leave" campaign's statement on trade policy, you will not find:

• The rejection of trade deals for "killing jobs" with special blame placed on developing countries (aka China) for inflicting a mortal wound on manufacturing prowess;
• The promise to impose punitive tariffs on major trading partners even at the risk of initiating a trade war;
• The call for a boycott of firms that relocate part of their production overseas.

Brexit then is not an endorsement of the Trump brand of predatory protectionism.

Instead, what the Leave campaign offered on trade policy are heaps of wishful thinking and hidden truths. It sought to downplay the importance of the EU market to U.K. producers in order to justify setting its sights on other horizons. It promised to open up trade opportunities and job growth by negotiating trade deals with emerging economies such as China and India. And it confidently stated that trade links with the EU could be restored through a U.K.-EU trade deal that would mirror what countries like Norway have done. But this optimistic prognosis left out a lot. For starters, a future U.K.-EU free trade agreement will most likely yield pared-down benefits. Norway gained access to the single market by agreeing to free movement of labor that Brexiters vehemently reject. Moreover, the U.K. cannot chart its own course on trade policy until its separation from the EU is complete. Restructuring U.K.'s trading relations will take years and the results are hard to predict. But the costs of uncertainty are immediate as companies and investors will recalibrate their strategies without waiting for a protracted process of trade negotiations.

Brexiters struck a xenophobic note, but did not produce an overtly protectionist manifesto. Yet, their success at the ballot did deliver a major blow to economic internationalism. Trumpism is both xenophobic and protectionist, and were it to prevail in the November election, its negative impact on globalization will be vastly more profound. But the die has not been cast, and there are sound reasons to doubt a Trump victory.

If we are to prevail in overcoming the politics of grievance, we must first reckon that populism did not materialize from thin air. It is based on a fact: As globalization intensified during the past two decades, the middle classes in the industrialized world experienced stagnant incomes. The inward push is enabled by the manipulation of this fact: Offering trade as an easy scapegoat for a vastly more complex set of factors producing economic disparities (such as technological change and political decisions on taxation, education, and safety nets). And this populism is based on a false promise—that "taking control," i.e., taking our countries out of the existing trading regime will make those left behind better off. Its one unmistakable deliverable will be to make all of us worse off.

The tide of uncertainty that has swept the United Kingdom after its vote to leave the European Union has spared few—including its emerging class of innovation districts.

These hubs of innovation—where anchor institutions, such as universities and R&D laden companies cluster and connect with startups, incubators, and a host of public spaces, coffee shops, retail and housing—are now asking themselves important questions that will affect their future. Will the U.K. broker a deal to continue free trade with Europe? Will access to talent across Europe be curtailed? Will the devalued pound keep U.K. advanced manufacturers competitive for the medium to long term? Will European Union legal frameworks be replaced with a regulatory platform that continues to support advanced sectors? What will happen to EU funding on science and innovation, such as Horizon 2020?

Of course, innovation districts are no stranger to uncertainty, if not chaos. These districts thrive on random mixing, on smashing different kinds of disciplines and people together to generate new ideas and new products for the market. In this close-knit, highly networked ecosystem, chaos breeds creativity. At the same time, the backbone of districts is a clear regulatory and legal framework with rules on intellectual property, investment, and funding streams. The twinning of chaos and certainty is what makes these places simply superb spaces to incubate new technology, aggregate talent, and experiment in linking placemaking with innovation.

Yet from the distinctive innovation districts in London to those emerging in the middle of England, such as in Sheffield and Manchester, to those rising in Scotland, such as in Glasgow, this moment of uncertainty could be not only painful—it could be downright dangerous. 

In the face of such uncertain times, the temptation will be to sit back and wait for the cards to fall. But this tempered, conservative approach is ironically the more risky tactic.

We recommend another path.

Now is the time for the institutions and firms that are driving innovation districts to strengthen their competitive position and expand their reach.

Now is the time to try new forms of collaboration between universities, large companies, and local enterprises.

Now is the time to test more democratic modes of innovation with maker spaces, fab labs, and shared infrastructure and equipment.

Now is the time to forge new partnerships with other innovation districts in the United States and Europe to share promising strategies around commercialization, networking, and financing.

Now is the time to apply new energy to creative placemaking, including strengthening the innovation–place nexus around key nodes and applying quick interventions around traffic calming, bike lanes, and pop-up gathering spaces. 

U.S. cities and innovation districts have demonstrated that progress can persist even when higher levels of government are adrift. U.K. cities and districts can do the same.

Event Information

On June 23, voters in the United Kingdom will go to the polls for a referendum on the country’s membership in the European Union. As one of the EU’s largest and wealthiest member states, Britain’s exit, or “Brexit”, would not only alter the U.K.’s institutional, political, and economic relationships, but would also send shock waves across the entire continent and beyond, with a possible Brexit fundamentally reshaping transatlantic relations.

On May 6, the Center on the United States and Europe (CUSE) at Brookings, in cooperation with the Heinrich Böll Stiftung North America, the UK in a Changing Europe Initiative based at King's College London, and Wilton Park USA, will host a discussion to assess the range of implications that could result from the United Kingdom’s referendum. 

After each panel, the participants will take questions from the audience.

Join the conversation on Twitter using #UKReferendum

Audio

• Brexit—in or out? Implications of the United Kingdom’s referendum on EU membership

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160506_uk_eu_brexit_transcript

Twenty-five years ago, in March 1991, shaken by the fall of the Berlin Wall and the rise of nationalist-separatist movements in the Soviet Baltic and Caucasus republics, Mikhail Gorbachev held a historic referendum. He proposed the creation of a new union treaty to save the USSR. The gambit failed. Although a majority of the Soviet population voted yes, some key republics refused to participate. And so began the dissolution of the USSR, the event that current Russian President Vladimir Putin has called the “greatest geopolitical catastrophe” of the 20th century.

Today, in the wake of the referendum on leaving the European Union, British Prime Minister David Cameron seems to have put the United Kingdom on a similar, potentially catastrophic, path. Like the fall of the wall and the collapse of the Soviet Union, the fallout from Brexit could have momentous consequences. The U.K. is of course not the USSR, but there are historic links between Britain and Russia and structural parallels that are worth bearing in mind as the U.K. and the EU work out their divorce, and British leaders figure out what to do next, domestically and internationally.

A quick Russian history recap

The British and Russian empires formed at around the same time and frequently interacted. Queen Elizabeth I was pen pals with Ivan the Terrible. The union of the Scottish and English parliaments in 1707 that set the United Kingdom on its imperial trajectory coincided with the 1709 battle of Poltava, in which Peter the Great ousted the Swedes from the lands of modern Ukraine and began the consolidation of the Russian empire. The Russian imperial and British royal families intermarried, even as they jockeyed for influence in Central Asia and Afghanistan in the 19th century. The last Czar and his wife were respectively a distant cousin and granddaughter of British Queen Victoria. The Irish Easter Uprising and the Russian Revolution were both sparked by problems at home, imperial overstretch, and the shock of the World War I. 

Like the fall of the wall and the collapse of the Soviet Union, the fallout from Brexit could have momentous consequences.

Since the end of the Cold War, the U.K. and Russia have both had difficulty figuring out their post-imperial identities and roles. The U.K. in 2016 looks structurally a lot like the USSR in 1991, and England’s current identity crisis is reminiscent of Russia’s in the 1990s. After Gorbachev’s referendum failed to shore up the union, the Soviet Union was undermined by an attempted coup (in August 1991) and then dismantled by its national elites. In early December 1991, Boris Yeltsin, the flamboyant head of the Russian Federation, holed up in a hut deep in the Belarusian woods with the leaders of Ukraine and Belarus and conspired to replace the USSR with a new Commonwealth of Independent States (CIS). With Gorbachev and the Soviet Union gone by the end of December, the hangover set in. Boris Yeltsin was the first to rue the consequences of his actions. The CIS never gained traction as the basis for a new union led by Russia. 

The Ukrainians, Belarussians, and everyone else gained new states and new identities and used the CIS as a mechanism for divorce. Russians lost an empire, their geopolitical anchor, and their identity as the first among equals in the USSR. The Russian Federation was a rump state. And although ethnic Russians were 80 percent of the population, the forces of disintegration continued. Tatars, Chechens, and other indigenous peoples of the Russian Federation, with their own histories, seized or agitated for independence. Ethnic Russians were “left behind” in other republics. Historic territories were lost. Instead of presiding over a period of Russian independence, Boris Yeltsin muddled through a decade of economic collapse and political humiliation.

Separating the U.K. from Europe...could be as wrenching as pulling apart the USSR.

Is Britain laying the same trap?

Another Boris, the U.K.’s Boris Johnson, the former mayor of London and main political opponent of David Cameron, risks doing the same if he becomes U.K. prime minister in the next few months. Separating the U.K. from Europe institutionally, politically, and economically could be as wrenching as pulling apart the USSR. People will be left behind—EU citizens in the U.K., U.K. citizens in the EU––and will have to make hard choices about who they are, and where they want to live and work. The British pound has already plummeted. The prognoses for short- to medium-term economic dislocation have ranged from gloomy to dire. The U.K is a multi-ethnic state, with degrees of devolved power to its constituent parts, and deep political divides at the elite and popular levels. Scotland and Northern Ireland, along with Gibraltar (a contested territory with Spain), clearly voted to stay in the European Union. The prospect of a new Scottish referendum on independence, questions about the fate of the Irish peace process, and the format for continuing Gibraltar’s relationship with Spain, will all complicate the EU-U.K. divorce proceedings. 

Like Russia and the Russians, England and the English are in the throes of an identity crisis.

Like Russia and the Russians, England and the English are in the throes of an identity crisis. England is not ethnically homogeneous. In addition to hundreds of thousands of Irish citizens living in England, there are many more English people with Irish as well as Scottish ancestry––David Cameron’s name gives away his Scottish antecedents––as well as those with origins in the colonies of the old British empire. And there are the EU citizens who have drawn so much ire in the Brexit debate. 

As in the case of the USSR and Russia where all roads led (and still lead) to Moscow, London dominates the U.K.’s population, politics, and economics. London is a global city that is as much a magnet for international migration as a center of finance and business. London voted to remain in Europe. The rest of England, London’s far flung, neglected, and resentful hinterland, voted to leave the EU—and perhaps also to leave London. At the end of the divorce process, without careful attention from politicians in London, England could find itself the rump successor state to the United Kingdom. If so, another great imperial state will have consigned itself to the “dust heap of history” by tying its future to a referendum. 

Event Information

In a close referendum last week, voters in the United Kingdom voted to leave the European Union, setting off financial and political shockwaves in Europe and around the world. British PM David Cameron has resigned, while Scotland has renewed calls for another independence referendum, global stock markets lost nearly $2 trillion on Friday, and the British pound is at a 30-year low. Many view the British referendum as commentary not only on economic and immigration trends in the UK, but as a possible forecast of the broader wave of anti-globalization and nationalistic political movements in the U.S. and Europe.

On June 29, Brookings hosted a discussion of the immediate fallout and medium- to long-term consequences of Britain’s departure from the EU. Panelists addressed how the process of exiting the EU might unfold, effects on the U.S.-U.K. and U.S.-EU security and trade relationships, on global development, and the future of the EU project.

Join the conversation on Twitter using #Brexit.

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• Brexit sends shockwaves: What now?

Audio

• Brexit sends shockwaves: What now?

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160629_brexit_transcript

Fiona Hill, director of the Center on the United States and Europe at Brookings and a senior fellow in Foreign Policy, discusses the decision of a majority of voters in Britain to leave the E.U. and the consequences of Brexit for the country’s economy, politics, position as a world power, and implications for its citizens.

Show Notes

Mr. Putin (New and Expanded)

The "greatest catastrophe" of the 21st century?

Brexit and the dissolution of the U.K. Brexit—in or out? Implications of the United Kingdom’s referendum on EU membership

EU: how to decide (Anand Menon)

Thanks to audio engineer and producer Zack Kulzer, with editing help from Mark Hoelscher, plus thanks to Carisa Nietsche, Bill Finan, Jessica Pavone, Eric Abalahin, Rebecca Viser, and our intern Sara Abdel-Rahim.

Subscribe to the Brookings Cafeteria on iTunes, listen in all the usual places, and send feedback email to BCP@Brookings.edu 

Editor's Note: This past week's vote in the United Kingdom to leave the European Union reveals huge frustration among British voters with economic, immigration, national self-identity, and the whole "European project." Trade between Britain and continental Europe could be notched back a bit as tariffs; London's role as a financial capital of the world may be compromised somewhat. But after acknowledging such real, if finite, concerns, writes Michael O'Hanlon, we should take a deep breath and relax. This piece was originally published by USA Today.

There's no denying it: this past week's vote in the United Kingdom to leave the European Union is very big news. It reveals huge frustration among British voters with economic globalization, immigration, national self-identity and the whole "European project." And there will be costs. Trade between Britain and continental Europe could be notched back a bit as tariffs return; London's role as a financial capital of the world may be compromised somewhat.

But after acknowledging such real, if finite, concerns, we should take a deep breath and relax. Silly headlines like that appearing in the June 25 NY Times about a looming end to the post-World War II order are not only premature, they are basically wrong.

Start with that order. The United States and United Kingdom worked together to win World War II, of course, without the UK being part of any European Union or even a European Community. (The European Community or EC was organized for European economic cooperation that began in the 1970s; it did not create open borders within Europe the way the European Union later did.) Indeed, we collectively won the Cold War without the European Union, which was not created until 1993. Western Europe had already re-established itself as a modern economic powerhouse before the creation of the EU, recovering spectacularly from the unbelievable wartime devastation that occurred in the 1940s. The United States helped a great deal with that process through the Marshall Plan and other mechanisms—none of which depended on EU bureaucracies or open borders.

Look at it another way. The UK is an important country. But with 1% of world population and 3% of world GDP, it does not drive the modern global economy. The stakes here are real, but again, they are finite.

Moreover, the tanking of shocked stock markets right after the Brexit vote should not confuse us about the state of economic fundamentals. To be sure, lots of people will have to work hard to negotiate new terms for Britain's future association with Europe. But the UK and the European Union's remaining 27 members will have powerful incentives to keep trade relatively free and financial markets quite integrated. Think of the models of Norway and Switzerland—also not EU members, but important and interlocking parts of the continent's economy. The UK is likely to wind up with a similar role in Europe's future.

Some people will worry about whether Brexit will weaken the EU's ability to stand up to Vladimir Putin as he causes unrest in eastern Europe. That is doubtful. The EU just last week renewed sanctions, with Germany and other continental countries leading the way. Britain's voice on such matters is important, but no more so than Germany's or France's, and it can remain important on the outside.

What about the US-UK "special relationship?" Again, I do not anticipate major problems. It is called a special relationship for a reason. We have been close allies for a century or more, and much of our best work together has happened bilaterally rather than through any EU, EC, UN, or other such multilateral mechanisms. That can continue.

The UK will remain in NATO, moreover — and NATO is, by far, the more important organization for global security, because it includes the United States while the European Union naturally does not. It is NATO, for example, that intervened in the Balkans wars in the 1990s and NATO that leads the Afghanistan mission even today. It is NATO that is sending battalions into eastern Europe today to stand up militarily to Putin.

On other issues, Britain has maintained its own prerogatives even while in the EU. In the Iran nuclear talks that led to last year's accord, for example, Britain had its own, independent role and voice. That won't change for similar situations in the future.

Even if, in coming years, Scotland secedes from the UK in order to rejoin the EU, that will cost the United Kingdom only 8% of its population (even if a higher percent of its castles, Loch Ness monsters, and men in skirts). Admittedly, the UK's ability to sustain nuclear forces could be challenged without access to Scottish ports—but those nuclear weapons, with all due respect to British friends, aren't really crucial pillars of today's global order in any event. Maybe Scottish secession would even persuade Britain to stop maintaining an unnecessary and costly nuclear deterrent.

To be sure, one can always find some hypothetical scenario in which having the UK outside of the European Union complicates life. To be sure, pulling out will make life temporarily harder for British and European diplomats and bureaucrats as they fashion a revised European order. And most of all, it is true that we need to take seriously the skepticism about globalization that UK voters have just voiced in a powerful and emphatic way. But the postwar global order is hardly falling apart.