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Bird’s Eye View: The Post-Brexit World

July 15, 2016 Leave a comment dridrive

British European Question

A periodic look at global resilience trends and expert opinion from our man in London
By Lyndon Bird, Chair of the DRI Future Vision Committee

On Thursday 23rd June 2016, the electorate of the United Kingdom voted by a majority of around 4% to LEAVE the European Union. This vote (now universally known as Brexit) seems to have stunned the political, business and media elites around the world. How will it affect the global resilience community? I have a few predictions for what might – and probably won’t – happen next, but first let’s look at the larger context of the vote and what it means for the world.

It is rare for any political event, other than perhaps the US Presidential race, to get global attention and top media billing. For the story to continue day after day, headlining news bulletins and press coverage everywhere, is unprecedented in my experience. The last time this level of coverage happened was after the fall of the Berlin Wall and the end of the Soviet Union.

Although a British citizen and resident, I missed the election count and the week of turmoil that followed because I was in South Africa on business. This enforced separation from the country at this critical time gave me a good perspective about how the rest of the world was reporting it. It also gave me a degree of objectivity on the whole affair, without being swept along by the emotional responses of both sides.

Fundamentally, if we look at it rationally, the vote was much clearer than claimed. It was only argued to be close because London (a totally international city where over 100 languages are reputed to be spoken) and Scotland (a country led by politicians with a separatist agenda) predictably voted to REMAIN. Outside of London, there are 9 official regions in England and Wales – and every single one of them voted to LEAVE – some by more than a 20% majority. The question of “why” certainly is in dispute but not in my opinion the validity of the result.

How the Votes Went

So why were we all (including this author) so surprised? With hindsight we should have seen it coming. On the day of the contest four opinion polls were published; two predicted close wins for each side and all concluded it was really too close to call. Experienced political watchers know that in the UK polls always tend to predict better results for the liberal academic establishment view (in this case REMAIN) than they actually receive in practice. So this evidence alone should have made LEAVE favorite to win. Of the national media virtually all of the right wing press called for a LEAVE vote while the left leaning papers called for REMAIN. The LEAVE-supporting Telegraph, Express, Mail and Sun are the leading opinion formers across the various socio-economic groups in England and Wales, but much less influential in Scotland and Northern Ireland. Those expecting a REMAIN vote were not necessarily going to vote that way themselves but expected others to do so because of the pressure being put upon them by the political establishment. The danger of a LEAVE vote was badly overplayed by the REMAIN campaign causing anger, cynicism and distrust among many middle class voters who might have been undecided. Nevertheless, the millions who ignored those warnings shows a frightening level of distrust in leaders and so called experts by the general population. This complete lack of trust is certainly not unique to the United Kingdom.

Political Chaos?

What has happened since the vote has probably not added much clarity to what the future holds – but some dust is starting to settle. The Prime Minister has resigned and has stepped down. His replacement has been determined by the ruling Conservative Party because the UK does not directly elect a Head of Government (Prime Minister). The new PM is a woman (the first UK female leader since Margaret Thatcher) and she was a REMAIN supporter.  On the LEAVE side the two main leaders and potential candidates for PM have fallen out in full media view and damaged their prospects more than those of some self-styled “reluctant REMAINERS,” who simply kept quiet during the campaign. It does seem bizarre to the outside world.

brexitIronically, the official opposition party is in a worse state than the government. It has fallen into total chaos with an unpopular extreme left-wing leader refusing to depart despite having virtually his entire shadow cabinet resign and 80% of his MPs voting against in him a confidence motion. Does it matter in Brexit terms? I think it does, the official opposition needs to take a sensible position and argue its case strongly where it feels the government is wrong. Unfortunately for them, it seems that their traditional working class support voted strongly for LEAVE while the shadow cabinet, MPs and their trade union financial backers were strongly arguing to REMAIN. It is difficult to see how they can bridge this gap – clever political rhetoric doesn’t seem to be working any more.

Economic Effects

Conflict is, of course, the very nature of politics, and what matters more to many is the real economy. So far signs are mixed. All main trading markets had factored in a 25% risk of the UK voting LEAVE. Obviously once that uncertainty was removed the initial market movement would reflect the choice made. A REMAIN vote would have triggered a stock market rally and a stronger pound – a LEAVE vote would have inevitably had the reverse short term response. What is important, however, is what happened once the new reality had been factored into the pricing models. Today as I write, the FT 100 (the UK leading share index) is above the level prior to the start of the Brexit campaign. The pound is down significantly against most currencies, particularly against the U.S. dollar which many economists argue is currently overvalued. However, this currency devaluation is generally welcomed by UK exporters, although as a net importer it will push up UK household bills and probably lead to some inflation.

The medium and longer term economic position of course depends much on what trade deal the UK is able to negotiate with the EU, as well as its ability to improve its trading position with the US, India, China, Canada, Australia and the developing nations in Asia, South America and Africa. Freed from the EU bureaucracy, LEAVERS argue the UK will be more innovative and successful. Leaving the largest trade bloc in the world is argued by REMAINERS to be risky and doomed to failure. Who is right? We will have to wait and see.

A Generational Divide

It was predictable that the usual protesters against capitalism, UK involvement in foreign wars, or similar left wing issues were initially out on the streets protesting against a democratic vote. Unusually, however, on this issue they were only reflecting the views of the majority of UK citizens under the age of under 35 – who seemed to be claiming they “loved” the EU.

The EU is purely a political project and the arguments for staying are economic not moral. Most independent observers would accept that the EU has made the rich countries (including the UK) richer and the poor countries so poor that they are now dependent on EU handouts for survival. It does seem strange that what I believe to be a caring, inclusive, social media-inspired generation claim to want is more capitalism and more global corporatism. What I think is that the issue at the heart of this is fear of change. After all, no one under 50 can possibly remember a time when the UK was not part of the EU, whereas those over 65 can remember voting to remain in the EU in 1965, many of whom have now dramatically changed their minds.

Predictions: What WON’T Happen

As Chair of the DRI Future Vision Committee I know readers will expect some predictions from me about the future. Well, I might disappoint some by not predicting doom and disaster. When politicians in the UK, bureaucrats in Brussels and pragmatic EU governments stop posturing and start negotiating, the future trading relationships will become clearer and a gradual move towards a controlled UK departure will happen. What I can predict with a high degree of confidence however, is what is not going to happen – despite overhyped media speculation.

  1. There will not be a second referendum.
  2. There will be no overruling of the vote by parliament.
  3. There will not be an emergency UK General Election. The current government will continue until 2020 as there is no legal or practical reason not to continue.
  4. There will not be any serious civic unrest beyond the usual protest fringe groups.
  5. Scotland will probably not have another referendum about leaving the UK – but if they do the nationalists will lose more heavily than they did last time.
  6. Northern Ireland will not leave the UK and join the Republic of Ireland in the EU; in fact, the Republic itself might have to consider leaving the EU following Brexit.
  7. London will not be damaged as the leading financial center in Europe, with only minimal bank staff relocations to the Eurozone countries.
  8. Immigration to the UK from the EU will not decrease in the short-term and overall immigration levels will not decrease significantly even after Brexit.

Predictions: What MIGHT Happen

Forecasts about what might happen are more speculative, but I am prepared to make a few.

  1. Countries such as France, Netherlands, Italy, Austria, Sweden and Denmark will face calls for Brexit style referendums. Their politicians will refuse them, thus creating more resentment and disillusionment with politicians across the continent.
  2. The Euro currency will survive but Greece will have to leave the currency bloc and possibly eventually even the EU itself.
  3. Talks to extend the EU to include countries such as Turkey and Albania will be put on hold, possibly indefinitely.
  4. At EU level an ideological war will break out between those who want closer European integration (France, Italy, Belgium) and those than want a looser framework based upon national government autonomy (Sweden, Netherlands, Poland). The side Germany selects will win – indications are that Chancellor Merkel instinctively favors the former but German industry prefers the latter. I think industry will prevail.
  5. The EU will not collapse but its influence will diminish and certain other members might well re-assess its value to them unless it changes significantly. Sadly, for those who voted REMAIN, other countries might now succeed in negotiating the type of terms that could have won the referendum.

Impact on Resilience

european continent marked with flagsI have been asked a lot how Brexit might impact us as resilience professionals. Unless the consequences are as dire as some world leaders claimed – total world financial collapse and World War 3 were just two of the more extreme – I think we should be able to cope reasonably easily. Even if some firms relocate their head offices from London to Frankfurt or Paris (and thus double their corporation tax liability) our planners can certainly deal with that contingency. The UK currency will not change, the world financial “plumbing” will not really change much, trade will still continue, relationships between countries and companies will ebb and flow as normal. Resilience is largely about dealing with disruptive change and certainly Brexit will cause some global disruptions. However, if we look at our main pillars of resiliency which are facilities, technology, people and business operations there is nothing more challenging to our profession from Brexit than that which followed 9/11 or the financial crisis of 2008. In fact, it should be much easier to handle as we have time to plan for it, rather than be taken totally by surprise.

However, those readers in the US and France who dismiss the possibility of Trump and Le Pen presidential victories need to take the threat seriously – establishment politics is struggling everywhere and the LEAVE victory may be the start of many such challenges to the conventional and convenient political order.

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