Alberta separatists, learn from the disaster of Brexit. I was there

Open this photo in gallery:

John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

Mark Carney knows what he’s talking about when he draws analogies between the Brexit referendum and Alberta’s separatist vote. After all, he was there.

So was I – in a meeting in Cambridge, England, the day then British Prime Minister David Cameron announced his fateful decision to hold a referendum on whether the United Kingdom should leave the European Union. Rather like Premier Danielle Smith’s goal of holding her party together, Mr. Cameron’s aim was to silence Tory malcontents who despised the European Union with a referendum the polls said they were likely to lose.

It would end up being one of the most catastrophic misjudgments in modern British history, the damage of which the country may never be able to repair.

Had Mr. Cameron taken his job seriously, he never would have allowed a minority faction in his party to set the national agenda. There was never a serious economic argument to be made for Brexit. There was only a deeply dishonest one.

Don’t give Alberta separatists space to gain traction, Stéphane Dion warns

Those who sold the idea derided the vast body of research showing the harm that would result from abandoning the country’s biggest market. Instead, they cherry-picked a handful of best-case scenarios – we’ll get a great trade deal with the United States; we’ll have all the cards in negotiations with Europe – and then made that into a picture of pure upside. As Boris Johnson infamously put it, the country could have its cake and eat it.

Well, no, it couldn’t, and it didn’t. Ironically, because the polls had long forecast that the referendum would fail, many “remain” voters stayed home whereas Brexiters – who skewed older and were therefore more inclined to vote – turned out. Thus did the country wake up on a June morning 10 years ago to the shocking news that the country voted to leave.

The worst-case scenario then came to pass. Britain’s economy slowed, its tax revenues tightened, its deficit worsened and its public services deteriorated. Rather than a rapid collapse, the decline has been slow and sure – because Mr. Carney’s Bank of England took extraordinary measures to stem a financial panic in the immediate wake of the vote.

When you open a Pandora’s box, you can’t then close it. Were the Alberta referendum to score a similar shock victory, unexpected consequences could follow. We actually don’t know much about the economics of secession, because it’s so rare. Most of the modern cases have either been instances of decolonization or the breakup of formerly communist states.

However, the little we do know doesn’t bolster the separatist cause. By and large, economies that secede tend to end up worse off in the long run than if they had stayed, largely because of the diseconomies of scale that result from a smaller market.

Opinion: Danielle Smith has called a quasi-referendum on secession. It’s best understood as a gambit to preserve her career

Sure, Alberta might get lucky, securing full control of its oil and gas royalties and its trading policy, and then using that sovereignty to ride the gravy train to future riches. It’s a lot to bet on, though. Countries that post-Brexit Britain tried to negotiate new trade deals with took advantage of its need for market access and drove harder bargains. Moreover, betting the farm on an industry with a questionable long-term future is risky.

In that regard, the recent Beijing summit between Xi Jinping and Vladimir Putin may have been ominous. The Russian President was hopeful that the energy crisis would persuade his counterpart to finally invest in a pipeline. The message from China was we’ll buy your gas, but build the pipeline yourselves.

Britain has also discovered that referendums can trigger unanticipated effects that become self-perpetuating. Secession, or even just an emboldened secessionist movement, tends to create an unpredictable policy environment that causes businesses to hold off making investments. That can then become self-reinforcing, as slowed investment slows growth, reducing tax revenues and thereby limiting the government’s own capacity to invest. Canadians don’t have to look far afield for evidence, since the 1976 rise of the Parti Québécois was accompanied by corporate relocations and a fall in property markets.

As a result of such increased uncertainty, Britain – which used to be considered one of the world’s most bankable countries – now pays a steep premium on its government bonds, leaving it with the highest interest rates in the G7. That’s bad for the economy, and it limits the government’s room for fiscal manoeuvre.

To outsiders, Canada is an oasis of stability in an increasingly volatile world. That’s a large part of why it has some of the lowest interest rates on the planet. Why anyone would choose to mess with this arrangement strikes foreigners as mind-blowing.

It seems no way to run a province, let alone a country.