Britain’s Problem is not the EU, it is Lost Leadership

Britain’s actions on Europe have an impact far beyond its shores.  They provide a blueprint for how to dismantle the unity of a democracy (and probably autocracies too), undermine a trade bloc and seed the destruction of a superstructure (an international trade body, climate change effort or even the UN).  While Britain may figure out how to stabilise to a state of affairs that it is prepared to live with, the Brexit project is a profound threat to others.  Why, how and what happened in Britain as it pursued its Brexit provides the key lessons for how to prevent further damage to peace, prosperity and freedoms in democracies across the world. 

Within less than a century, the United Kingdom has gone from an empire on which the sun would never set to an island country at war with itself.  Two world wars and decolonialisation reduced this Great Power to one of several European regional powers.  Up until now, the UK appeared to do well in the smaller pond called the EU, even negotiating a sweet deal, the best of any EU member, that allowed it to leverage the power of the EU as the largest trading bloc in the world while keeping its own currency, financial hub and immigration controls.  However, a small group of its politicians harboured the dream that it could once again be a great global player.  A closer look reveals that Britain is not well placed to succeed in a time of significant global macro-change and, despite its innovation and many advantages, it has failed to build a global scale high-tech industry, lacks diversified natural resources and does not possess a highly skilled labour force for advanced manufacturing, to name a few.  Other EU nations in the absence of these dreams have done better.  And so, even within this smaller pond, the UK is not the biggest fish, ceding ground to continental powers that engaged constructively with each other and implemented structural policies that allowed them to benefit from increased globalisation beyond one core area (financial services in the case of the UK).   None of them complained about “loss of sovereignty”, as the Eurosceptics did, because they had lived the reality of a world where for obvious gain they had forfeited slices of sovereignty to the UN, the WTO, climate change agreements and indeed every trade agreement with every major trading power around the world. 

So, against a backdrop of historic global change – which include the transition from the industrial to the information age with the rising dominance of global big tech giants; the big geopolitical issues of our times such as China’s rise to superpower status and America’s bid to block this, renewed Russian assertiveness and the rapid ascent of Asia, a much destabilised Middle East, and; major geo-economic challenges such as increasing global trade protectionism, resource competition and the race for alternatives – the solutions currently being proposed by Britain’s leaders are irrelevant.  Neither the Conservative Party’s neoliberal proposals to create the ‘Singapore of Europe’ nor Labour’s throwback to a planned socialist economy will solve Britain’s deeper problems.  

Brexit is the fulcrum on which Britain’s structural and strategic challenges are coming to the fore, exposing the lack of leadership of both the government and the opposition.  Brexit is also the Trojan Horse, wheeled in by its leaders, using its own people, that places the state at risk of burning itself down.  Ironically, it also places at risk the status of its capital, London, which generates 22% of the country’s GDP and pays 30%  of its total taxes.  It is now clear that Britain’s politicians are not capable of negotiating a deal that is better than the current deal with the EU and are hiding behind the “will of the people”, having stoked national populist sentiment in the referendum and having subsequently exhausted the public with an endless torrent of Brexit news and policy inertia, promising that somehow things will be better once they walk away from their neighbours and place themselves at the mercy of the other great global trading blocs like the US and China.  

With a general election called for December 2019, this month’s Sign of the Times looks at Britain’s current standing, its challenges and what might lay ahead for Britain as well as the world.  No country is safe from the challenges that faced Britain during the past few years and no one can stand back and assume this cannot happen in their home.

How Britain Got Here

Britain’s reduced circumstances are the cumulative effect of decades of changes in the world at large and the reactive policies implemented by many of its leaders that, with the benefit of hindsight, have proven to be mistakes. From the end of the Second World War to the beginning of the current decade, a period that roughly corresponds to the primacy of what is known as the ‘Liberal World Order’, Britain has seen its position in the world reduced from a key (if battered) victor of the war to a leading European power with global standing to currently a country marginalising itself through a Cold War with itself and vitriol towards its neighbours in the EU.

The overall trajectory of the decline of Britain has been facilitated by a series of compounding declines and losses that have nothing to do with the EU, indeed the EU has provided a shield for Britain as it has for other member states to save it from the harsh winds of global trading powers. Britain’s own failings include:

  1. Failure to Produce: The Decline of Britain’s Manufacturing Base.  In 1952, manufacturing output totalled over 30% of GDP, employing 40% of the workforce and making up a 25% of world manufacturing exports.  Today, manufacturing in the birthplace of the Industrial Revolution accounts for just 11% of GDP, 8% of employment and 2% of global manufacturing exports.   Britain in the 1950s enjoyed a technological edge in aircraft, aerospace, computers and electronics that it failed to exploit globally, focusing on the domestic and captive colonial (now Commonwealth) markets that insulated it from the need to invest, innovate or reform in the absence of competition.  The dismantling of Britain’s empire and globalisation exposed its industry to both low cost and high quality competition that it was not ready to face, and government policy to address the issue was erratic, bouncing back and forth between government and market driven solutions that failed to provide industry and investors with the continuity to make long-term investment decisions.  The Thatcher years took a definitive step to abandon the industrial sector in favour of services and despite some important benefits especially in creating the City of London’s financial hub, this destroyed mass manufacturing employment without adequately replacing it.  Making its non-financial services population into retail and restaurant staff was not the fulfilment of the promise of a modern services economy.
  2. Failure to Build: The Decline of Infrastructure. Britain’s infrastructure is increasingly inadequate for the country’s needs.  With its infrastructure ranked near the bottom of the group of G7 nations, commensurate with its rate of government infrastructure investment . Mega-projects like the £15bn London Crossrail train line, Europe’s largest infrastructure project, and High Speed 2, the country’s high-speed rail link, are helping with a belated catch up. However, the country is facing a shortage of affordable homes, a looming shortfall in electricity output and overloaded transportation networks.  Austerity measures implemented following the Global Financial Crisis have slashed investment spending to reduce public borrowing, and while election manifestos promise huge spending increases, recent studies indicate that these are not credible. Even the government’s plans for £500bn in additional spending, the implied investment rate of 2.8% of GDP, is c.£100bn below the OECD’s recommended level of 3.5% required to support a growing economy let alone the level required to catch up for past lapses.
  3. Failure to Share: The Neglect and Decline of its Regions. De-industrialisation and the government’s lack of investment in the affected regions to mitigate negative impacts has led to economic and social decline in key parts of the country including the creation of a significant North-South divide in the UK and a cities vs rural mentality. Regional inequality of income has reached an average £48,000 per person difference between the most prosperous (South-eastern) and the most deprived (Northern) areas, and the mortality rate in Manchester, Hull and Blackpool is higher than in some Turkish and Polish cities. This decline has been further exacerbated by Britain’s tax policies that transfer wealth from regions to the central government but do not return it; 95p in every £1 paid in tax goes to the central exchequer, compared with 69p in Germany, and UK local government spends 1% of GDP on economic affairs, while Germany spends twice as much locally and regionally. There are many examples worldwide on what to do, from the development of East Germany following reunification, or China’s 14 Special Economic Zones. However, neither the half-measures of the incumbent Conservatives nor Labour’s plans of taking wealth away from the prosperous rather than increasing it in the regions, are answers to this problem.
  4. Failure to Retain: The Loss of Talent. The 1960s saw an exodus of British talent, particularly from the academic, scientific and technical sectors, usually to the United States but also to Australia and the rest of Europe. Fuelled by high taxation, industrial unrest and a lack of opportunities at home, Britain’s home-grown talent took their skills elsewhere and contributed to the growth of other countries, further undermining the long-term prospects of Britain. Today, the country faces the risk of a second brain drain in the UK as a result of Brexit. In the last three years, Britain has lost 1000 financial services jobs (expected to rise to 7000), 10% of its next generation doctors and also 10% of its engineers. High profile supporters of Brexit such as Dyson, Ineos and Somerset Capital Management (founded and led by Jacob Rees-Mogg, the current Leader of the House of Commons until he joined the government) have shifted their businesses or themselves moved abroad. And Japanese (Honda, Sony and Panasonic), American (Ford, MoneyGram) Europeans (Axa, Michelin and Philips) and Indian firms (Tata) have closed or cut back their operations in Britain.  And with the loss of talent, £1 trillion of managed assets are expected to move from London to hubs in the European Union as part of Brexit. 
  5. Failure to be Fair: The Decline in Quality of Employment.  The trendline of unemployment in the UK, has been falling for nearly a decade is now just under 4%, at a 40-year low.  However, this statistic masks the fact that during this period, Britain has seen a substantial decrease in the quality of employment, with people earning less and subject to greater uncertainty: Real wages adjusted for inflation have fallen over the past decade, with the average worker earning a net £780 less a year (after taxes) than they did in 2008. Further, the percentage of workers on zero-hours contracts in their main job (whereby employees are not guaranteed a minimum number of hours in any given week) rose from 0.6% of those in employment in 2010 to currently 2.7%. And the increase in the number of people reporting self-employment rising from 8% in 1980 to 15% today, has at least been partially driven by companies transforming employee positions into ones filled by contractors to save costs and avoid benefit payments rather than entrepreneurism. A similar structure for employment is normally prevalent only in developing countries rather than major developed ones. 
  6. Failure to Invest: The Decline in Wealth Through Austerity. While unemployment rates are at their lowest levels since 1974, Britain has seen a significant increase in poverty, as austerity measures have led to cuts to the country’s social safety networks and put 4m people into ‘deep poverty’, with incomes at least 50% below the official breadline. Cuts to public services since 2010 have resulted in increasing inequality rates, more children and older people are living in absolute poverty, increased homelessness, and an increasing reliance on food banks. Further, education has suffered too, with England in particular having more 16-19 year-olds with poor literacy and numeracy skills than in almost any other rich country, leaving these individuals ill equipped to participate in the country’s job market or have meaningful opportunities to participate in the country. 

It was a long time ago that Rome ruled the world, yet 1700 years later, Romans continue to live well today. By the same token, while the fall of the British Empire has inevitably seen British power decline dramatically, it has remained a member of the G7 and is ranked among the top 10 nations in the world in terms of overall competitiveness, largely thanks to the attractiveness of the city of London which attracts a disproportionate number of headquarters for European access, international businesses, skilled foreign workers, tourists, real estate investments and capital flows  and the legacy of English being the world’s language. So, when Britons say, either happily or with a resigned sigh, “we will be fine post-Brexit”, that is no doubt true, and is meaningless.  

The failures explored above have materially impacted the country’s positioning relative to its peers, creating challenges for Britain’s long term prosperity: the UK today suffers from low manufacturing competitiveness (whether through high productivity or low cost), lacks high tech leadership, is facing a widening trade deficit and decreasing credibility in international affairs, with its future in the EU, arguably the most successful multi-national endeavour of the post-war period, highly uncertain. Brexit does not change that it rebases the country to a lower level. 

Britain today lags behind Germany and France, and often Italy and Spain, across a wide range of economic and social indicators, ranging from labour productivity, innovation, R&D spending, education and increasingly medical infrastructure, as under-investment in its National Health Service, the pride of the country, is reducing the quality of medical care despite untiring and valiant efforts to the contrary. Further, Britain’s failure to build global scale in key industries finds it lacking in home grown global players.  

Global Context: Britain’s Position in a Changing World  

It is against this backdrop of decline and from a weakened position post its Brexit that the UK will need to address the key challenges arising from its own former choices as well as a series of broader macro-changes, many of which are of course shared with other industrialised nations.

The Immediate Challenges

The key drivers of the shifting global context include the following:

  1. Technological Challenges, Digitisation and Automation
    • Further Industrial Decline. Increasing automation and economic restructuring in the West is leading to further losses in manufacturing and industrial sectors and jobs. Despite its history of de-industralisation, the UK still employs nearly 5m people in the secondary sector (construction and manufacturing), implying further future cuts. 
    • Digital Automation. Digitisation, AI and machine learning is also increasingly leading to the automation of services and white collar jobs, paricularly across repetitive processing, clerical and support services. With an estimated 1/3 of total jobs in the UK at risk from automation, UK workers will require scaled reskilling for non-automated roles requiring digital, management and creative skills. 
    • Shift in Value Creation. Further, the shift to the information age is shifting the center of economic value creation to high technology companies. Seven of the 10 most valuable companies in the world today are technology companies, while none of the 30 largest companies in the UK are tech companies.   
    • Cybersecurity. With increasing digitisation comes the need for digital security, at the individual and corporate levels.  The cost of Cybercrime in the UK is already reaching £20bn per annum, over half the cost of the country’s total organised and serious crime of £37bn, and growing. Further, there is an increasing proliferation of cyber warefare capabilities by state and non-state actors which makes cybersecurity a critical national issue too, with the UK witnessing multiple cyber attacks during the current election underway. 

    Britain’s position: Britain is unsuccessful as a creator of global world leaders in technology. And while it stands to lose jobs in both manufacturing and services as a result of new technologies and automation, it is a potential offshore centre to host international technology companies, a position it can only weaken as it gives up its full access to the EU.

  2. Environmental Challenges, Sustainable Environments
    • Climate Change and Pollution. Climate change and the impact of pollation are putting global development, sustainability and security at risk.  As a signatory to the Paris Agreement, the UK has committed to reduce greenhouse gas emissions by 50% on 1990 levels by 2025 and by 80% on 1990 levels by 2050, obligations it is not tracking to meet at current trend levels.
    • Alternatives and Resource Competition. The increasing financial and environmental costs of fossil fuels is creating a race for the development of alternative energy sources and competition for remaining economically feasible natural resources.  While Britain’s share of proven oil reserves are among the largest in Europe, at 0.14% of the global total, it remains tiny, and its share of energy production from renewables (33%) lags behind that of its continental neighbours.  In the EU, Germany (40% renewable contribution) , Spain (40%) and the Scandinavian countries (50-60%) par are far less dependent on fossil fuels than the UK having invested, in some cases, for over a decade or so to create alternatives. 

    Britain’s position: Britain has a massive transition to make to a more clean economy and that is increasingly becoming a key term in trade agreements and as an outsider to the EU it will not have the benefit of EU investments, policies, technology sharing to enable this cost to be minimised.

  3. Demographic Challenges, Mismatches of Human Capital Needs and Supply
    • Ageing Populations. Western industrialised nations are facing ageing populations that are putting a strain on their century old pension and healthcare systems. With these systems seem increasingly unaffordable, countries are facing tough decisions around the level of services they can sustainably provide and the need for more radical reform solutions. In the UK, the percentage of the population above the retirement age of 65 will increase from 18% to 21% within the next decade implying annual additional pension costs of £20bn in today’s Sterling. 
    • Mass Migration. Persecution, war and violence across developing countries have created over 65m displaced refugees globally.  This, combined with economic migration due to environmental degradation and economic inequalities, is creating unprecedented waves of migration to industrialised nations. With over 1m refugee applications filed in the European Union alone in 2017, Western societies will need to consider appropriate responses to address this challenge. 
    • Attractiveness. The UK has long been a global destination of choice for migrants. During and following the Brexit Referendum campaign however, the country became decidely less welcoming of foreigners, with the then Home Minister, Theresa May, the Home Minister at the time, asking Britons to turn in suspected illegal immigrants, and a spike in violence and abuse against immigrant populations. Given these workers contribute 10% of the country’s GDP,  and over their lifetimes pays in more than £78,000 than they take out in public services and benefits, on average (compared to an overall average negative contribution by workers born in the UK), this was an awful instance of social injustice and self-harm.    

    Britain’s position: In the competition for human resources in an ageing world, there will be competition for human resources, both skilled and unskilled.  Britain cannot be anti-immigrant if it wishes to attract the populations it needs away from others.  The country has a need for both skilled and unskilled labour which could be satisfied with immigration (overwhelmingly by the young) filling the shortages in the workforce required to fuel the economy and fund the social services gap created by an ageing population.  Despite its attractiveness, the percentage of the population that is foreign born (both from EU and from non-EU countries) in Britain lags behind those of France and Germany.  How it has conducted itself during Brexit has driven away immigrants and no doubt made the country less safe for them to return.

  4. Economic Challenges, Interdependent and Sustainable Growth.
    • Globalisation. Global economic integration and interdependency is continuing to increase due to globalisation. While this has driven growth overall, it has also led to job migration to lower cost countries predominantly, the loss of strategic industries and in some cases economic marginalisation of groups and regions. The UK’s dependence on trade continues to increase, having risen from 51% in 2003 to over 62% today. 
    • Protectionism and Trade Wars. Trade driven growth today is at risk due to rising global protectionism and the threat of trade wars between the world’s two largest economies. Given the high degree of economic interdependency in the world today, these trade wars have potential global repercussions. The world is already organised into major trading blocs: the EU, US, China and in the future, India. As part of the EU, the the UK was able to secure highly favourable terms on the 49% of its total trade that is with the EU and it was able to use the bargaining power of the EU for the remainder to access and increase its trade with the US, China and others. 
    • Asian (Economic) Century. Fundamental economic and demographic shifts will ensure that the 21st century is Asian. Asia is rising and is set to grow to over half the world’s population, middle class, and economic output within the next decade. Three of the five largest economies in the world are already in Asia (up from one 15 years ago) and the economic importance of Western countries is widely expected to decline, with the UK barely among the ten largest economies in the world by 2050. 

    Britain’s position: Given macro-trends Britain’s relative economic importance globally will continue to decline, while the importance of its trade with the world will continue to rise, increasing the country’s interdependence with the rest of the world.  Britain’s standalone negotiating leverage in bilateral relationships, with an economy 20% the size of China and 15% the size of the US’, is clearly set to be weaker than as part of the EU.

  5. Geostrategic Challenges, Position in the World’s Power Structure
    • End of the Liberal Order. Following a 70-year run, the end of the Western Liberal Order in its current form is approaching. Facilitated by the withdrawal of American leadership of this order under President Trump, decades old institutions and alliances are being weakened leaving them ill-prepared to respond to the challenges and changes of the 21st Century. America has already declared its position on this as putting “America First” in such negotiations with the explicit aim of using its overwhelming leverage to win in all fields from trade to military to technology.  
    • China Superpower Status. China under the presidency of Xi Jinping has risen to global superpower status, impacting the global economy, politics and the security landscape. All countries, including the UK, will need to make decisions around competition, collaboration, accommodation or containment in their response to China’s rise.  And America will be clear on which approach smaller countries need to take. Outside of the EU, the UK’s standing is also clear.
    • India Rising. India, the former crown jewel of the British Empire, has overtaken its former ruler and is projecting to reach a US$5tn economy by the middle of the next decade.   As a liberal and open democracy, India represents a potential counterweight to China’s influence and a potentially key ally for Western countries in the coming decades. It has thus far been uninterested in negotiating a trade or other deal with the UK and is reported to be very much looking forward to its former ruler returning to ask for a deal as a much smaller and weakened nation. 
    • Russia Resurgent. Following a period of turmoil after the demise of the Soviet Union, Russia has re-emerged as major power with global aspirations, significantly impacting the Eurasian security environment and, through increasing cybercapabilities the broader world, too. The UK’s National Cyber Security Centre has reported a series of attacks by Russian agents (and others) on the UK. 
    • EU Consolidation. The EU now fully recognises the need to establish a new vision and model, Britain and its Brexit may well have been a catalyst alongside other important ones such as President Trump’s approach to the EU, Russia’s resurgence and China staking out its position across the world. Whether that is by way of a European defense plan, increased democratic representation, increased social measures or an integrated policy on immigration, the EU as the most successful political and economic union of countries in the world remains wooed by other powers and so is a force to be reckoned with. 

    Britain’s position: In a world rapidly moving to the jockeying for power between major powers, Britain as a nation outside of a major bloc is set to lose its influence over one of the biggest of these powers, the EU, and is well positioned to be a rule taker from all other major powers. In the future, it may find itself complaining not only about the EU’s requirements but also America’s, China’s and India’s. At best, it stands to face the choice of joining a future coalition of smaller weaker nations.   

The Macro Challenges

These broader macro-changes themselves sit in the context of world history, its long-term arc and the inevtiable changes that it gives rise to.  These changes include:  

  • The Rise and Fall of Empires. Throughout history, the rise and fall of dominant powers have followed a repeating pattern of rapid expansion, a period of ‘stability’ marked by increasing overstretch, and finally decline, usually in the face of a new and rising power. By most measures, the 20th century has been the American Century, which has ended with the US as the sole hyperpower following the demise of the Soviet Union.  While the 21st century may have started as an American one, history suggests that it will not end as one and the evidence is currently pointing to the inexorable rise of Asia to replace it.  The British Empire, a product of the 19th Century is of course long gone but its vestiges stretch into living memory, leaving in some the delusion of a great country that can become a great power, apparently by undoing the recent past.
  • Strategic Resource Superiority in the Transition of Superpowers. Great powers depend on their ability to exploit strategic resources, typically in the form of energy and materials, and the successful development and exploitation of a new resource allows rising nations to challenge established powers, who struggle to transition away from older resource bases that underpinned own their rise, e.g. America’s exploitation of oil superseded the British Empire’s use of steam. Superpowers themselves decline when their resource demand exceeds supply, or when their resources are superseded by superior alternatives.  The next generation strategic resource is yet to be fully determined but strategic investments by China and the US, the two superpower contenders in AI and high-tech indicate that this resource may well be data, particularly digital data. The level of investment required to merely play or at the least not accept products, services and rules of engagement from others requires clout which can come from a world scale economy, which the EU has but Britain does not. 
  • The Gap Years. As the world moves to a population of nearly 10 billion by 2050, the growth model of the current world order is clearly not sustainable without profound changes. If the entire world were to live to the standard of the average American, it would need quadruple the current global natural resource base for them to do so, implying a significant impending gap in resources as expectations grow.  Growing demand for nearly everything will soon lead to shortages which can only be solved by technological breakthroughs that allow us to produce more while using less. These fundamental breakthroughs will need to occur across a wide range of areas including energy, material sciences, manufacturing, healthcare, defence and information technology; otherwise shortages and conflict will define the period between the limits of this era’s technical capabilities and the breakthrough or reset at the beginning of the next era, the “Gap Years”. This thinking, focused on fear of shortages and zero-sum economics, is an undercurrent in the populism that is sweeping America and to a large extent British politics in the Brexit debate.
  • Waves in Transition of Civilisations, The Shift to the Information Era. Overlaying the transitions above is a societal shift from and industrial to information civilisation underway today.  Information age, knowledge-based societies are replacing industrial age, production-based societies, much like they themselves replaced agricultural age, farming based societies during the Industrial Revolution starting in the 18th Century. In each of these transitions, the old order, despite resistances, is swept away by the superior technology, organisation and culture of the new societies. Western industrialised nations, and Greater Britain in particular as the birthplace of the revolution that gave the passing age its name, are now the incumbents who will pay the highest price in this current transition. Importantly, one of the key drivers to the information age has been the creation and open sharing of knowledge enabled by the current liberal world order. Against this wider backdrop, national populism appears also as a rear-guard attempt of the older industrial order to turn back the clock both on the transition to the information age and the open society that has facilitated it.
  • Potential Flow of Humanity into One Culture. Finally, it is worth considering the direction in which the ‘stream of humankind’ is flowing. Society, since migrating out of Africa 200,000 years ago has expanded both geographically and socially, (aided by increasing communications, infrastructure and technological capabilities) to form an increasingly complex and inclusive civilisation. In the progression from bands to tribes to chiefdoms to states, empires and civilisations, the logical endpoint would appear to be a fully globalised world built on shared values that marginalise the divisive impact of ethnic, cultural and other differences. However, history, particularly in the first half of the 20th Century, has shown that this flow can also ebb, as societies create wars, catastrophes and even civilizational collapse. The British Imperial endeavour, despite is parochial nature, was an ambitious project that advanced a shared language, shared values and the fundamental belief in the importance of human rights and the superiority of democratic institutions (although it did not always offer these willingly to its subject states). Brexiteers in the UK today, while invoking pictures of the country’s imperial grandeur, are actually propagating a vision for an even smaller and isolated country than it is today, unwelcoming to foreigners, estranged from its neighbours and allies.

Of course, these wider currents affect all countries, not just the UK, and every industrialised country is exposed to the challenges they give rise to (albeit to varying degrees).  British voters cannot blame their leaders for these fundamental challenges facing the country. They can however blame their leaders for the weakened position from which the country must address these challenges.  Moreover, they can (and should) blame their leaders for their failure to provide adequate responses to these challenges. Neither the Conservative Party’s neoliberal proposals to create the ‘Singapore of Europe’ nor Labour’s throwback to a planned socialist economy provide a reasonable road map for the country to a secure and prosperous future.  To the contrary, they reveal a tired continuation of both long-held Thatcherite and Marxist ideological platforms that fail to incorporate the lessons of the past 20 or even 70 years.    

Both Conservatives and Labour are accountable for the country’s current dilemma that has stoked protest and backlash against the status quo. The failure of Britain’s leaders is one of the primary drivers of the populism that has arisen in the UK.  Unfortunately, both parties have appeared to respond to this challenge not with solutions to address underlying issues but with for the polarisation of their platforms, attempting to catch the falling knife of voter sentiment and setting the stage for further radicalisation.  

The Impact and Implications of Brexit on the UK and the World

Brexit has paralysed British politics, and to a lesser extent that of the broader EU, for nearly four years now. Having brought down two governments to date, the origin of the 2016 Brexit referendum is a case study for appalling political leadership, having been called by then Prime Minister David Cameron as a political tool to out-manoeuvre the Eurosceptic wing of his own conservative party. This abrogation of responsibility, based on a gross miscalculation, the assumption that a successful leave vote would enable the prime minister to quell the dissent in his party’s ranks, and the personal rivalry between two Eton-Oxford men in David Cameron and Boris Johnson, has had catastrophic consequences for the United Kingdom.

Why? The Role of National Populism in Securing Large-Scale Change

So, why did some of Britain’s most influential politicians from both parties conflate these issues and mislead the British people?  And why did leaving the EU become such an important topic in the first place? 

Aside from the ambition of its leaders and their rivals, the answer is very particular to Britain. Its position as an island separates it (geographically and, for many, mentally) from the European mainland; its former status as and memory of being a global empire still holds sway with a large proportion of the public at large, and; the mindset of the small number of Britain’s elite institutions from which its leaders are drawn believe in their entitled right to rule and not be answerable to others, a dated sense of “sovereignty” which has fallen behind the integrated and interdependent world that countries operate in the world over.   

Perhaps though, an over-arching reason for Brexit is that we live in a time of increased uncertainty, in the transition between world orders. As the old order melts away, the pressure in the transition of power leaves countries, particularly those ill-positioned for the future, increasingly desperate in the absence of ideas and leadership, abandoning the order they helped create, turning inward and seeing their allies as rivals.  

Against this backdrop of uncertainty and change, leaders can effectively exploit public fears and stoke National Populism in a quest for power, subverting truth in the process. Britain is one more country to fall victim to the self-destructive power of that force. In failing to resist and in some cases even embracing this force, British leaders have managed to undermine the progress of the nation and its standing in the world. 

How? Redefining the Issues, their Causes and Effects, Misleading the Nation  

Prior to the referendum, the British public was clear on the most important issues facing them: the economy, health and immigration, and Brexit was not a major political issue for the British public. Following what we now know to have been a manipulative and misleading campaign rife with misinformation, digital manipulation and  misdirection, Brexit topped the country’s issue list by a clear margin for a long time. With the leave campaign having successfully conflated Brexit with solving the issues actually believed to be important (such as Boris Johnson’s now widely recognised misleading claim that the UK was paying the EU £350m a week, suggesting that this money should be used to fund the National Health Service, or claims that the EU doesn’t allow the UK to control its borders), the referendum offered a binary choice that over-simplified complex questions, and further encouraged voters to identify with one side or the other, creating widespread political division. The major issues that the public cared about remained unanswered but were conflated with Brexit to make the case for a radical change. The three issues that the Brexit campaign brought to the fore were immigration, sovereignty and the economic burden of the EU, all of which they asserted could be solved by Brexit. Analysis of these shows:

  • Immigration – The EU is not a barrier to immigration control.  Immigration has been identified as the deciding issue for the largest number of leave voters, and 57% of the UK population today is in favour of stricter immigration control. However, leaving the EU does not substantially improve the UK’s ability to regulate immigration.   “So, the key reason we voted Brexit is we want to take back control of our borders. That's what we voted for.” Nigel Farage, Brexit Party Chairman In 2018, people born outside the UK made up an estimated 14% of the UK’s population, or 9.3 million people of whom over 60% were born in countries outside of the EU. The EU has no rules preventing the UK from restricting immigration from non-EU countries, and has provided a specific directive  allowing a country to repatriate EU immigrants (which already contribute on average £2,300 more to the UK exchequer every year than the average British born adult) if they do not meet one of the requirements for residence set out in the directive (employed, self-employed, self-sufficient, or student), providing the UK with a tool which it has never used.  So, the truth is that leaving the EU does not materially change Britain’s ability to manage immigration, which has always effectively been its control. 
  • Sovereignty – Britain has sovereignty and exercised it within the EU. The second largest issue for UK leavers is the more amorphous matter of ‘sovereignty’, with Pro-Brexit advocates wanting Britain to “take back control” from European Union governments and bureaucrats. And while Eurosceptics can legitimately argue that the EU may have adopted excessive regulations, they cannot argue that any decisions were taken without the U.K.’s participation. “Brexit is…[the] Magna Carta…it’s the great reform bill, it’s the bill of rights, it’s Waterloo, it’s Agincourt, it’s Crecy. We win all of these things.” Jacob Rees Mogg, Leader of the House of Commons The UK, (like every other member state) is represented in the EU highest governing body, the Council of Ministers and in the period of from 2009-2015 its representative voted with the winning majority on 87% of the issues decided by the council, and it has veto rights over any decisions related to foreign affairs, taxation, justice and the EU budget. So, Britain always had sovereignty and exercised it as it saw fit, securing advantages in the broader democratic framework of the EU in matters such as trade, security and defence, and subsidies for its deprived regions.
  • Economics – The EU is a tiny fraction of the UK’s budget. The UK today is the second largest economy in Europe while being the fourth largest contributor to the EU budget, and the ninth largest on a percentage of GDP basis. Thanks to a 40% rebate mechanism secured by Margaret Thatcher,   Net payments to the EU total £9bn, or c.1.1% of the UK budget. With healthcare spending in next year’s budget at over £160bn, education spending in excess of £90bn and defence spending exceeding £50bn, EU contributions can best be described as a marginal item in the country’s overall obligations. the UK contributes less to the EU than Italy, a country whose economy is nearly 30% smaller than the UK’s. Payments to the EU represent 1.6% of the total UK budget, or c.1.1% on a net basis considering the c.£4bn of EU disbursements to the UK annually. With healthcare spending in next year’s budget at over £160bn, education spending in excess of £90bn and defence spending exceeding £50bn, EU contributions can best be described as a marginal item in the country’s overall obligations. So, the truth is that being part of the biggest trading and security bloc in the world and one of only three nations (alongside France and Germany) in strategic importance in that bloc cost c.1% of the UK budget.

It appears that the truth is that neither immigration, sovereignty nor the economics were rational reasons to leave the EU, none of them being undermined by membership of the bloc. But Brexit should not be measured by what it will fail to achieve but by what it will actually bring about economically and politically. And there is a surplus of evidence that Brexit will leave the UK worse off, at least over the foreseeable future.

What? Creating Division, Discord and Distrust 

The primer on how to dismantle the credibility and position of a leading nation, cooperative regional or international alliance will be able to draw on the Brexit campaign and how its leaders conducted it, during which they:  

  • Divided nation at every level. British politicians highlighted and sharpened fault lines in the country, with clear socio-demographic delineation between Remainers and Leavers, young vs old, more vs less educated, ethnically diverse vs white, socially liberal vs conservative, well off vs economically marginalised, as well as British vs English, with the non-English constituents of the United Kingdom (Wales, Scotland and Northern Ireland) all voting to remain against England’s leave and cities vs rural areas with major cities almost all voting to remain;
  • Paralysed decision making. Effectively paralysed government for three years, cost two prime ministers their jobs, deadlocked parliament, and provided a boost the polls to fringe political parties, like UKIP and now the Brexit Party, which took 30% of the UK vote in the 2019 EU parliamentary elections; 
  • Destroyed confidence. Significantly reduced popular confidence in it’s the country’s political institutions with the percentage of the British public believing that their democracy is ‘not in good shape’ rising from 47% in 2017 to 69% in 2019;  
  • Established radical politics and policies. Driven the mainstream political parties to embrace increasingly radical positions in response, with the Conservative Party lurching right and Labour threatening to undo the legacy of Tony Blair’s ‘New Labour’ in an embrace of reactionary socialism, and 
  • Anti-democratic tactics. Emboldened politicians to practice anti-democratic tactics in one of the oldest democracies in the world, with the current government attempting to suspend parliament in an attempt to have its own way;
  • Damaged economy. Incurred significant “The decision to prorogue has the effect, of frustrating or preventing, without reasonable justification, the power of Parliament to carry out its constitutional functions as a legislature and as the body responsible for the supervision of the executive” UK Supreme Court ruling on the government’s suspension of Parliament Sept 25, 2019 economic implications, with the cost of Brexit to date in excess of $90bn, due to the decline of the pound, increase in inflation, erosion of household spending power, decline in house prices, and weak exports, leaving the country £1,000 poorer, per person, on average than it was before the referendum;
  • Risked financial centre. Risks to the financial centre that earns and pays taxes disproportionately for the country as a whole having seen over £60bn funds leave the country since the referendum vote;
  • Destroyed trust in information. Enabled the spread of fake news and created a toxic environment, with politicians becoming the target of both online abuse and physical threats.
  • Legitimised national populism. Britain has seen politicians exploiting the legitimate social, economic and political challenges faced by the UK (and other major countries) today by tapping into a distrust of politics, fears regarding the loss of national culture, driving further de-alignment between voters and mainstream political parties.

Where?  Beyond Britain

The European Union without the UK is undoubtedly a smaller, less effective and less stable place than it was before.  For most of its history, Europe has been divided and in competition, and the UK leaving the EU reignites this competition, adding credibility to anti-European sentiments in other member states and strengthening the growing forces that threaten to pull the union apart. 

The success of the Brexit referendum campaign and its impact on the political landscape in the UK has already emboldened populists in other European countries tapping into economic discontent and a growing distrust of politics with messages of the people ‘taking power back’.   However, for now most continue, see the benefits of EU membership while remaking their local scene from an immigration perspective. 

Further, if the EU fails, the UK’s Brexit may well turn out to have been the pivotal turning point for the peace, prosperity and freedom of a region with the legacy of two world wars.  President Trump has stated clearly his support for Brexit and his wish for others to follow.  A Europe without the EU leaves it exactly where Trump may wish it to be, particularly in trade negotiations: 'Only as part of a united Europe can the UK play a global role, only together can we confront, without any complexes, the greatest powers of this world…[After Brexit] the UK will become an outsider, a second-rate player, while the main battlefield will be occupied by China, the United States and the European Union.' Donald Tusk, President of the EU Council smaller, less effective and less stable, and therefore with less negotiating leverage against America. A successful Brexit will no doubt be chalked up as a win by President Trump, both in the populist rhetoric for his own domestic audience and in substance, setting the pieces for the next move in breaking up the EU, either by moving to destabilise and break out another country from the union (perhaps Greece or an Eastern Europe member) or by weakening the union as a whole by tactically shifting political and economic support to a newly solitary Britain.

In terms of broader political impact, Brexit also legitimises the use of populist tools by mainstream political parties in Europe and world-over, given that the right wing of the Conservative Party (e.g. the European Research Group) has adopted many of the tools pioneered by less mainstream parties, such as divisive rhetoric, nativism, social media, and the use of selective or misleading information. 

Arguably, Brexit also plays into the hands of geostrategic competitors like Russia, whose leader Vladimir Putin, could legitimately claim credit for supporting a conflict in Syria that led to an exodus and refuge crisis imperilling the EU project, and enabling a small group of fringe politicians in the UK (with some help from Russian hackers and Cambridge Associates) to begin the break-up of the EU, a thorn in Russia’s side.

Saving World Democratic Systems: Unpalatable Realities for the UK and the World

Britain’s legacy at this stage may well end up being to have divided itself, to have set in motion the division of its neighbours and to have unwittingly written the rule book on how to divide and break up democracies and even multi-lateral regional and international institutions generally. If Britain is to prevent this from happening, or indeed if other countries wish to prevent Brexit-like own-goals of their very own, they will need to face some some hard truths:

  1. Democracies are not adequately equipped to protect the truth. In the absence of institutions that preserve the truth and monitor the conduct of politicians and the media, a nation cannot conduct a fair vote, especially in a world with modern social media.  Regulatory and compliance, cyber-defence and legal measures have to be updated if democracy is to function. 
  2. Referendums are not a substitute for leadership and they do not work equally well across democracies. While some democracies are used to referendum others only conduct them by rare exception.  Switzerland have had 180 referenda in the last 20 years, the US have had none and the UK has only had three in its history. 
  3. Conduct matters and in today’s instant social media world, the conduct and competence of the players are transparent to all concerned.  The leaders of a respected democracy like Britain have demonstrated they are prepared to mislead, obfuscate, break its laws, suspend its democracy, incite hatred and cast blame on others.  
  4. Nations that divide themselves into extreme groups solicit extreme politics and extreme politicians. The UK faces two extreme visions of the nation, neither of which are credible ones to position the nation in the world.  Both of which hold out the chances of destroying the superstructure of the UK as a functioning capital-based state and of the EU too. “Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.” Karl Marx, Preface to the Critique of Political Economy, 1859 It provides a roll-back to the pre-War period when both Marxists and Fascists thought to remake the world.  Clearly, that is not Britain’s leaders today, however, nor was it the equivalent leaders of that time.
  5. Small nations do not get to call the terms of deals, obviously. The deal the UK has is the best deal it can negotiate. Theresa May’s deal has not been improved by and Boris Johnson, the differences focus on internal issues not a better deal from the EU on matters such as the ‘divorce bill’, transition arrangements or citizen’s rights. The UK has been a rule taker in these negotiations of course.
  6. In trade too, small nations are rule takers. Trade negotiations are a matter of size, more than almost anything else. A free trade agreement for a country such as the UK which has hollowed out its manufacturing amounts to others selling freely in the UK without the UK having much to sell much in return. Looking ahead, pyrrhic victories will no doubt be declared, clocking up trade deals, where the UK will be a rule taker in the most important trade negotiations (the US, China, EU and in the future, India).
  7. Leaving a major trading bloc creates a different economic structure for an economy. In the absence of a compelling economic rationale (e.g. a revolutionary resource discovery), the decision to step away from well-established trading blocs in favour of standing alone will generally rebase the country to a lower economic structure. This is not to say that things may not be fine, just not as fine as they might have been.
  8. Fundamental issues remain unsolved and are deferred during the trauma of change and in a fast-moving world that may well be something not recoverable. The UK has failed to address its most important issues of poor-quality jobs, rising poverty and failing services and infrastructure while they have been embroiled in a self-generated internal conflict.

As stated above, these truths are of course not unique to the United Kingdom and could apply to any number of Western industrialised countries. While many countries have thought this a peculiarly British issue, they should pause and consider that a seemingly prosperous, stable, united democracy, near full employment and of course the challenges of most modern societies, managed to abandon all of this in the space of a few years to be left with only radical and inadequate options that nearly half its population demands it takes. There is no reason to believe this could not happen to other Europeans, Japan, the US (which arguably is on a version of this path already) and beyond democracies, China and others should also pay heed. Failing to solve a country’s underlying issues and not preparing well for the longer-term cycles of change in the world opens the door to populism and leaves Western democracies, in particular, worse placed in the changing world order. A West without leadership that cannot address these fundamental issues risks giving rise to populism, tribalism, anti-elitism, transactionalism and nativism, ultimately leading to a world of islands in an illiberal world order.  

The first steps of the West down the path to an illiberal world order have already been taken in the UK (and the US), paved by populist politicians’ easy answers that unite the aggrieved, the disenfranchised and the angry. Their agenda, while ultimately unsustainable, is internally coherent and east to understand.  In the UK, it risks creating a society that promises more distributive economics but is less prosperous overall, one that is more local and more tribal, less open and so less diverse.  

The Brexit campaign provides a case study of the steps that if taken on a global scale would further accelerate the demise of the Western liberal order, namely: 

  1. Propagating the narrative of Western stagnation and threat to its culture from immigration, highlighting the negative impact of immigrants and downplaying their economic and social contributions;
  2. Resisting change by embracing a smaller footprint, protecting domestic industries and forfeiting investments in the next generation industries that create short term dislocations in exchange for long-term benefits, and
  3. Eschewing cooperation and multi-lateralism in the name of protecting the home base and national sovereignty, abandoning and undermining international institutions with the potential to solve transnational issues and creating and world of bilateral transactions with win-lose characteristics whose terms will witness a race to the bottom.

This is the trail being blazed by the America First campaign,  which given Britain’s historical, geographic and economic circumstances has found the country to be the weak link in the European chain, with leading Brexiteers like Nigel Farage enjoying the US president’s overt support and effusive praise.  Britain today, perhaps unwittingly, finds itself on the leading edge of these illiberal and populist trends and its actions risk pulling the rest of Europe with it down this path, both as a direct result of its own actions and by the political benchmarks it is establishing. Therefore, its choices from here on have the potential to shape the future far beyond its own borders.   Can Britain prosper beyond Brexit?  There are scenarios where it can of course. The bigger problem is that its path not only show others how to do a version of this, in itself, it poses a risk of having a domino effect on others.

Conclusion: Quo Vadis, Britannia?

On the eve of its general election Britain stands at a crossroads, with the democracies of the world standing next to it. Stepping back from all the rhetoric of Brexiteers, the UK is inescapably part of Europe, economically, historically, culturally, and geographically. It is also the successor state of a former hyperpower with global reach, with all the advantages and disadvantages that this position brings, and the birthplace of parliamentary democracy. Further, the UK is home to the world’s second most important financial centre,  the fourth largest market for debt , one of five permanent members on the UK security council, the world’s sixth largest economy, the seventh largest equity capital market, and one of eight nuclear weapon states.  

Despite all these advantages, the UK has lost enormous credibility with the world in how it has handled Brexit to date, and how its leaders have misled its people. Yet, the nation continues to be one that attracts peoples from all over the world for education, tourism and work. And for all its challenges, Britain has demonstrated that it can both innovate and execute successfully: Cambridge’s biotech cluster and 2012 London Olympics are two of many examples from which its leaders can draw lessons.  Any successful path forward for the country post this election will need to recover its standing and leverage all of its assets and resources while addressing its underlying challenges.  

Potential paths include:

  1. Remain and Reform. Empires rise and fall, this is the way of the world. And while the sun did definitively (and permanently) set on the British Empire, Britain still matters and has an important role to the play in the world, and in Europe particularly.  Remaining a part of ‘Europe’ as a member of the EU provides an opportunity for Britain to exercise regional and global influence. Regionally, the EU has recognised the need for consolidation and reform if it is to survive and flourish in a changing world. “Of course, Brexit means that something is wrong in Europe. But Brexit means also that something was wrong in Britain” Jean Claude Juncker, President of the European Commission As a leading member of the EU, Britain has the opportunity to be a saviour of the European project, rather than a facilitator of its demise. And a strengthened Europe with the UK as part of a Franco-German leadership trio provides a strong base for British power projection. Much like Germany has used the EU as a platform to expand globally, Britain can leverage the EU to promote its own interests abroad, adding the weight of the Union to its own in a world that will be increasingly fractious and dominated by countries larger and more powerful than the UK standalone.
  2. Leave and Co-operate. Given the high degree of politization of the Brexit debate and the polarisation that it has created, the winner of the election may well conclude that they will be unable to govern effectively without delivering a withdrawal from the European Union in some shape or another, assuming that they will be unable to ‘sell’ continued membership to the Britons who voted to leave. Most of the most ardent Brexit supporters have supported (at some point in time, at least) post Brexit models that would continue to see the UK closely tied to Europe: a ‘Norway’ or EFTA model (membership in the European Free Trade Association and the European Economic Areas, as well as a customs union), a Switzerland model (member of the European Free Trade Association but not the EEA) a Canada-style proposal (a free trade deal with the EU), or even a Singapore model (a unilateral free trade approach). Of course, anything but the last option will require negotiation and agreement with a partner whose faith in the UK has been sorely tested over the past three years, but this an effort worth making for the UK, given that it provides it with potential access to the 22 trade agreements the EU is tied to.
  3. Leave and Go Alone. The final alternative is a Britain that deprioritises or fully eschews close collaboration with the EU and pursues global partnerships and relationships independently. Such a Britain is sure to become a rule taker, rather than a rule maker in the new world power structure. It is likely able to advance its own interests only when dealing with geopolitically and geo-economically irrelevant counterparties, or when it also serves the interests of a larger more powerful one. “[A US-UK trade deal is] just not on the cards if there's any harm done to the Good Friday accords” Nancy Pelosi, Speaker of the US House of Representatives Such a Britain would likely feel pressured to run into the arms of any partnerships offered by another major trade bloc, the US and China, whose current administration sees trade and foreign relations as a zero-sum, win-lose game, leading to a pyrrhic victory for the UK government at best. This assumes that the United States can even deliver a ratified trade deal in its current state of political deadlock before China can. On a more global basis, a solitary Britain risks setting off a chain of cascading events that create a smaller, more insular, less free and less true and prosperous world.

Today’s Britain is clearly not the same country as the one that ran and shaped the world. It is not the Britain respected for its ability to trade and feared for its ability to conquer. It is not the Britain that understood the subtleties of how things worked in the world and used diplomacy to build alliances and protect its interests beyond the reaches of its far-flung navy.  The nation that leveraged these assets to ‘divide and rule’ the world has today divided itself, at every level of its society and from its neighbours.  In a world in transition from one order to the next, the world’s major power blocs are jockeying for position and resources, leaving the UK, which has shown that it cannot be trusted to stay aligned to its friends, on the outside to be buffeted by the inevitable storms of disruption.

The UK is that unique nation that fought in two world wars, drawing in the US as ally and partner, to go on to join hands with its European allies in what is perhaps one of the great peace projects of the world, the EU. In leaving the EU, it is weakening this alliance and the peace and prosperity it has underwritten for the continent and beyond for over a century.  Further, it is legitimising populist sentiments and the use of populist tools in other countries, helping to push political views in what has traditionally been a series of consensus driven, centrist democracies to the extreme right and the extreme left.  Regardless of the outcome of the current election, those that have a deep love and caring for the country hope, no doubt, that it rises to its moral, social, economic and political potential as a force for good in the world.


  1. Please see GPC’s February 2019 Sign of the Times, “India’s Journey to a US$5tn Economy: Growth Beyond Policy”
  2. Please see GPC’s November 2019 Sign of the Times, “India’s Rise: Growth Scenarios”
  3. Ibid
  4. See the Feb 2019 Sign of the Times:  India’s Journey to a US$5tn Economy: Growth Beyond Policy
  5. Please see GPC’s October 2018 Sign of the Times, “Transforming India’s Growth Model” and September 2018 Sign of the Times, “Reforms and Accelerating Growth are the Key to Political Power in India”
  6. Please see GPC’s September 2019 Sign of the Times, “Strenghtening India’s Growth Multiple in the Global Slowdown”
  7. Please see GPC’s March 2018 Sign of the Times, “Briefing: India-Pakistan Conflict – An Inflexion Point?” and July 2017 Sign of the Times, “Path to Power: India’s Great Opportunity in the Changing World Order”
  8. Please see GPC’s April 2018 Sign of the Times, “India’s States: Re-alignment Towards Growth”, September 2015 Sign of the Times, “Creating Growth Through its States, How India Can Become A Long Term Driver of Economic Growth” and July 2015 Sign of the Times, “India’s States: the India Within India”
  9. Source: 2015 Trump presidential candidacy announcement:
  10. The Guardian
  11. Source; 2011 Census of India
  12. Source: Carnegie India
  13. These include the 1984 anti-Sikh riots, the 1990 Mandal Commission protests against caste-based reservation, communal violence associated with the demolition of the Babri Masjid in 1992 and the 2002 Gujarat riots
  14. Source:  Business Today, FDI is currently 8.1% of GCF
  15. Source: UN Population Statistics
  16. Source: World Economic Forum
  17. Source: Our World in Data 
  18. Based on proportion of population listed as “Scheduled Castes” and “Scheduled Tribes” in the Indian Census, 2011
  19. See appendix for definitions and sources