BUSINESS

How Brexit Fits Into The New World Order

What if the U.K.'s vote to leave the EU is not an isolated incident, but part of a populist trend that warns of more to come?

Britain's vote by a slim margin last week to leave the EU wasn't supposed to happen. On the morning of the vote, polls gave "leave" only a slim chance of winning. 

Unexpected as it was, the Brexit referendum wasn't an isolated incident. In fact, it fits into a larger global narrative of populist uprisings destabilizing the status quo.  

Back in January, a team of analysts from Citi put together a huge report on this new world order. The report referred to the risk of deviating from the political status quo "vox populi" (the "voice of the people" in Latin).   

Citi uses the term to mean populist movements and new upstart political parties on the edges of the spectrum, coupled with non-existent global economic growth and governments that are unable or unwilling to do much about the increasing inequality.

This means that various popular movements, like the Brexit campaign in Britain, Donald Trump here in the U.S., far-right parties in Europe, such as Marine Le Pen's National Front in France, and even resistance to the rush of migrants from the Middle East into Europe, are inter-connected. (Syria's civil war, remember, began during the Arab Spring uprising.) Essentially, these sorts of movements destabilize the status quo, and therefore are likely to destabilize global markets. 

Related or not, on a more fundamental level, the authors of the report see a great power vacuum in the world. The U.S. is no longer as powerful as it once was, particularly since the Iraq War boondoggle. Europe is too politically fractured to assert what potential power it may have. China is too focused on growth and regional concerns to police the world. Russia is, well, Russia. Without a global balance of power, the authors see a greater risk of political destabilization everywhere. (This is known as a "realist" view of international relations.)

There's a global sense of economic stagnation, which governments have largely been incompetent at fixing. The middle class and working class are seeing increased inequality and fewer good job opportunities. For that, they blame globalization. 

Everything comes together "in an environment where global growth is stagnating while public expectations remain high and government capacity to effect positive change through reforms is low," the Citi authors write.

Brexit is a warning that these are issues that are not going away. Current global leaders seem rather ineffectual at dealing with them. Agree or disagree, this is what the capitalists are afraid of.

An infographic of global risks, according to Citi's Vox Populi report from January.
An infographic of global risks, according to Citi's Vox Populi report from January.

 

 

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