“Animal Spirits” and institutionalism


the consequences of the Brexit vote by Britain will take years to sort out, especially since the Government still has not officially triggered negotiations on the terms of withdrawal as specified by Article 50 of the European Union’s Lisbon Treaty. But while almost every country in the world will be affected to a lesser or greater extent by the decision, the underlying rationales that undergirded Britain and the other European countries’ formation of their union will now have to be re-examined by other countries that followed their putatively positive example. Notably, the Caribbean and Caricom.

The EU emerged out of war-ravaged Europe in which Germany had been comprehensively defeated and in fact split into two parts that mirrored Europe itself that now had distinct eastern and western ideologically defined “blocs”. The Allies, led by the US, decided to “rebuild Europe” by creating new institutions to develop its western bloc. The economic model to achieve this goal was “capitalist/free market” in orientation. They began by forming the European Coal and Steel Community in 1950 to unite their member countries economically. In 1957, this was then transformed by the Treaty of Rome which created the European Economic Community (EEC), or ‘Common Market’.

The development of new institutions to deepen the integration further politically continued as Britain started an expansion drive when it joined the EC in 1973. The Maastricht Treaty (1993), Amsterdam Treaty (1999) and the Lisbon Treaty (2009) were all supposed to create a European Union. This would have members operating as independent countries but each conceding a tremendous amount of sovereignty by forming a single market, which, in the main, used a single currency (the Euro) and allowed free movement of goods, capital, services and people between member states.

Underlying these institutions was the assumption that the rules undergirding them served to advance the “greater good” of all its members. And it is actually this premise that was on trial in the referendum that resulted in Brexit. The question, of course, is who decides what is the “greater good” – the leaders who the people elect to be their representatives or the people themselves? The answer given last week is a majority of voters (52%) disagreed with their elected leaders that the EU served their interests. The leader of the Conservative Government has resigned and there is great pressure for his opposite number on the Labour benches to follow suit.

While there may have been any number of issues which convinced voters that to remain within the EU was not in their interest, nativist fears were the clinching factor. “Nativism” describes the primal fears of “swamping” that are raised against immigrants or newcomers who are blamed for everything that ails the body politic in a country – from crime to economic slumps. The flood of three million immigrants into Britain after 2004 from Eastern Europe, which had been in the Communist bloc but were then absorbed into the EU, created a groundswell of opinion that rejected the economic argument that were made by most leaders for staying in Europe.

Nativism is not a new phenomenon and in the US during the 19th Century there was great agitation against Irish migration into the country which is now mirrored in present-day anger against Latin Americans. At other times, there were anti-Catholic sentiments. But nativism is only one of what Lord Maynard Keynes called “animal spirits” that act against “rational” behaviour on which all institutions are founded.

If one were to consider only the rational economic arguments made for remaining in the EU – economies of scales in marketing in the vast European market, sharing in defence spending, being part of a large bloc that can deal more assuredly with other power blocs, etc – then maybe the vote should have gone the way most leaders thought it would.

But leaders have to accept that the rational bases of institutions can sometimes have unintended consequences, “due to animal spirits”. Such as Brexit.