Brexit: How systems change – or don't


Comment: What happened, and what happens next?

1st July 2016
By Charles Leadbeater

In the debris of what is left of the United Kingdom people are living with a sense of collective bewilderment: the framework for much of their lives seems to have collapsed around them.

The United Kingdom turns out to be deeply divided, along multiple lines of age, education, class and location. It has a class of political leaders who do not want to lead. A campaign that won by offering to "take back control" now seems not to want to do so, its leading advocates having fallen out spectacularly.

David Cameron and Boris Johnson have just behaved in way eerily reminiscent of the big banks in 2008: having taken a huge gamble with the country they have just walked away without taking responsibility for a gamble which did not pay off and left the rest of us to pick up the pieces.

The nation voted to leave the EU and yet no one seems to want to walk out of the door. The most likely prospect is that the UK hangs around the party for a while; like a child who has eaten too much sugar, it will linger on the naughty step until it calms down, stops fighting and promises to behave. It will not be invited back any time soon.

None of this confusion should be that surprising because this is an age of oxymorons, of things that do not add up and which should not go together. It is a time when rapid innovation and deep stagnation go hand in hand. Where a country can be in freefall and yet completely paralysed. Where power is both more centralised and more decentralised than ever.

Yet there is sense that, due to the events of the past few days, everything has changed for good in the UK . It is as if the entire system has flipped on its head and the world turned upside down and inside out. That sense of disorientation is most profound among the educated, professional, cosmopolitan middle classes who are not used to be on the losing side of political votes. They have just found the country they thought they were in charge of has been taken back by people who think very differently about the future, identity, community and the rest of the world.

Yet what kind of change is overtaking us and why? It is more than just a vote, which could be reversed by another vote perhaps. It seems more sweeping and permanent than that. It was a vote on membership of the EU but also on being part of a certain version of the modern world. The Leavers have said the modern world does not work that well for them, so they have decided not just to turn their backs on it but to make it more difficult for the rest of us to have access to it.

In one bound, Euroscepticism crossed the chasm and went from a niche product to a mass one

What do you do in response, especially if you are Angela Merkel and ultimately responsible for a European system which has just been given an almighty shock, one which markedly increases the chance that more are on the way?

One way to think about it is that we are in the midst of a systemic change in the UK, which may presage a systemic change in Europe and even more broadly.

The EU is a system of 28 member states, held together by a common market, shared institutions and procedures, laws and norms, which are largely intergovernmental and not fully federalist. It is a system for people to govern and trade in a common area largely through cooperation between nation states. Though far from perfect, it works, after a fashion, and has held Europe together for more than 40 years.

Why is the British Brexit vote not just a change for the UK but perhaps for this entire system? Systems change under five conditions, and all of them are present in the current situation in the UK and the rest of Europe.

First, the incumbent system starts to lose legitimacy because it underperforms or starts to fail in some regard. This creates the basis for dissatisfaction with the status quo.

Containerisation, for example, replaced traditional methods of shipping goods because the old systems became increasingly costly and inefficient.

In terms of the EU and Britain's relationship with it, performance seems to many to be failing because of lack of economic dynamism, slow growth, austerity and a failure to deal with migration crisis. EU decision-making is opaque, slow and seems distant and undemocratic.

More generally, the Brexit vote revealed the extent to which a globalised, innovation-driven economy is not delivering for many, especially the older and unskilled in once-industrial towns, something that is true across the EU and not just in the UK. On the contrary, many people feel not just left behind but discarded and disregarded. These people feel they have no stake in saving a system which has left them and their communities stranded. The political system seems to have little to offer these stranded people (although ironically, EU investment in poorer regions has been one of the few things they have been able to build on).

Second, alternatives to the system have to appear, in niches. These niche alternatives provide an ideological challenge to the status quo. They back that up with the possibility of what seems like an alternative.

The cosmopolitan middle classes have found the country they thought they were in charge of has been taken back by people who think very differently about identity, community and the rest of the world

This is, for example, how the Dutch adopted clean piped drinking water. Various experiments with piped water emerged in different parts of the Netherlands in the late 19th century, to provide water to ships in the port of Rotterdam, among other things. It was the accumulation of these experiments that eventually led to the creation of an entire system of pipes.

Since the 2008 financial crisis, Europe has provided a rich array of niches from which left and right populists have attacked the failing status quo from the margins. This has further undermined its legitimacy and provided ways for former extremists to become mainstream. In the context of the financial crisis and the institutional blockages in Europe, once-extreme ideas became plausible alternatives. Thus from virtually nowhere UKIP, an isolated, divided party, led by someone widely regarded as a saloon bar bore, has opened the way to a vote overturning decades of British foreign policy. These niches attract entrepreneurs who might seem unrespectable and wild, but it is precisely that quality which means they keep going.

Third, these alternatives have to cross the chasm, from the early adopters to the mass market. Many innovations fall into this chasm: they fail to attract a mainstream market. For a long time that is where UKIP seemed to be destined.

The referendum provided just the bridge needed for Eurosceptic politics to cross the chasm, from the fringe to the mainstream. It was a gift given to them by David Cameron.

What was essentially a row within the Tory party (an elite pastime) became a form of low-cost, mass politics (a bit like EasyPolitics). That in turn created a mass version of sectarian Eurosceptic politics by turning it into a simple, on/off, in/out, vote.

In one bound, Euroscepticism crossed the chasm and went from a niche product to a mass one.

As important, though, the Leave campaign was more modern in form than the Remain campaign. Vote Leave gave its consumers a way to do something that made them feel better. It had the feel of an uprising. Vote Remain gave people fear. There was no sense of social movement. It was David Cameron's top-down campaign, conducted by experts and people in top jobs.

All system change involves mass social change. That is how people in 19th-century Britain became clean. It was not just the arrival of an infrastructure to pipe clean water to people's private bathrooms, it was also Lever's bar of soap, combined with new social habits. People encouraged one another to get clean. That is how Leave won and Remain lost.

The fourth ingredient is that the alternatives to the existing system have to mobilise resources and investment – money, talent, people, social capital – to scale up.

In shipping, containerisation as a system only took off when new players came into the industry with very large amounts of capital to invest in new ports, cranes, ships.

The referendum created the conditions – a national vote, outside party lines – for resources, small and large to flow behind the formerly niche providers to take their message to scale. In this the traditional press – the Daily Mail, the Sun and the Daily Telegraph – were critical. They put vast media resources, more than any party could buy, behind the campaign. The referendum made Leave an investable proposition, albeit one that turns out to be more like a sketchy "minimum viable product", which will need a lot of improvement and will go through lots of pivots.

Some of these first four components of systems change are often in play to a certain extent and yet systems still hold on to power. For change to happen, radically and suddenly a fifth and final ingredient is required.

The dominant regime has to split from within, fatally weakening it.

Dominant regimes never fail just because of external pressure. They fail because external pressure creates the conditions for an internal split. That split then robs the regime of its coherence and its starts falling to bits (sound familiar?). The Conservative party debate about the future of the UK's relationship with Europe now resembles a Notting Hill dinner party gone badly wrong.

The rise of the jet airliner is an example of just such a split in a dominant industry regime. In the 1950s, propeller-powered airliners were still the dominant technology for air travel because the industry was governed by a cartel of fear. None of the airlines wanted to step out of line to explore the potential of the jet engine, a potential that was already well known. They preferred to live with a sub-optimal technology rather than take the risk of doing something different. (This, roughly speaking, is the position the Leave campaign argues Britain found itself in: many people, including Jeremy Corbyn and David Cameron, thought the EU was suboptimal but they went along with it because they were so fearful of the alternative – perhaps with good reason.)

The cartel of fear that dominated the airline industry was broken when, in 1954, Pan Am became the first major airline to order planes with jet engines rather than propellers.

Dominant regimes never fail just because of external pressure. They fail because external pressure creates the conditions for an internal split

That is precisely what happened with Brexit. When Boris Johnson – Etonian, Tory and former Mayor of cosmopolitan London – decided to side with the Leavers, along with Michael Gove, it provided just enough of a division in the establishment to create a crisis.

The dispute between two Etonian Tories would not have had such significance were it not for the build up of the other four factors. But the tipping point was the split in the political elite (helped by Labour largely being a bystander in the process and quietly withdrawing its own support from the dominant pro-Europe regime). Johnson made it legitimate to support what were once seen as fringe politics. Corbyn's lukewarm endorsement did nothing to help the regime. That created the basis for a political, cultural and diplomatic realignment of forces, which will now work its way through the UK like Doris Salcedo's crack across the floor of the Turbine Hall at Tate Modern.

That combination of five factors is why the Brexit vote is such a potential system changer for the politics industry. So, what happens now?

In the space of a week, Britain has plunged into a political, cultural, diplomatic, economic, constitutional and perhaps moral crisis, which it faces without any sign of competent, skilled and experienced political leadership. It seems quite likely that Britain will go through a period of prolonged crisis and introspection, which may only further fragmentation and division, especially in the context of an economy in recession, which stands to lose a chunk of its financial services industry to the rest of Europe.

The optimism of the liberal globalists in the Leave campaign that this heralds a new era of trade and entrepreneurship looks unlikely to come true in a country that seems to want to become more inward-looking (and in some quarters more openly and violently racist).

London makes up an enormous chunk of the British economy, and its success depends on attracting to it people of diverse talents from all over the world. Mrs Thatcher delivered an enormous shock to the British economy in the early 1980s; a shock that still echoes today in stranded industrial communities. But at least it also delivered a degree of entrepreneurial energy that helped to create new businesses and attract global financial services. It is far from clear where the creative energy of the Leavers is going to come from in a little Britain that will likely be a poor advert for a go-it-alone, trading nation state.

Perhaps the biggest question for Britain is what it makes of a vote that has revealed such stark divisions. Few politicians seem much interested in even pursuing that question: they are too busy fighting for their careers.

In a sense this was a vote for greater equality, albeit in an odd way. In effect, those who have been left marooned by the globalised, cosmopolitan, ideas-driven economy have just decided that those who profit from that kind of world cannot do so without impunity. The cosmopolitan elite will be reined in by people who see nothing to gain from being more open, mobile, innovative and diverse.

That may make the UK poorer, but it might also lessen inequality: house prices in London, for example, are almost certain to stop rising, making the city more affordable for those on median incomes. If the high earners in the banks do start to move abroad, many will applaud that as a sign that the economy is being rebalanced in favour of those on average incomes and in manufacturing and services.

Will the rich, networked world of financial services and the knowledge economy, simply carry on and ignore that message or will they try to do something about it, with greater regional investment in education, culture, entrepreneurship and innovation? Perhaps the most important question for the UK is not whether it is in or out of Europe but whether it decides to become more or less divided and unequal. In the long term the only way to reverse the Leave vote is to promote the EU as a way to get a fairer Britain that offers more to those who are currently losing from open borders and trade. It is far from clear that the British political system, as it stands, is capable to taking this strategic step, which is why we may be in for more turmoil.

What does all this mean for the European system? And if you were Angela Merkel looking after this system what would you try to do?

Three scenarios among many seem most likely.

The first and the most likely is an extended period of muddling through, in London, Berlin and Brussels. In this the EU's need to move slowly, through consensus and discussion, will prove to be a huge asset. Thankfully it will not move decisively and swiftly. It will take its time. Britain will be confined to the naughty step. Everything will carry on. The summer will come and people will go on holiday, all over Europe. The crisis will pass. New accommodations will be made. Deals will be done. People will learn to cope. The British having had a rush of blood to the head will revert to keeping calm and carrying on. Let's give this muddling through scenario a 60 per cent likelihood. It is what people will try for, whether it works or not remains to be seen.

The trouble is that this rather stolid, resilience is uninspiring and does nothing to address the underlying issues of inequality, loss of identity and insecurity that the Brexit vote reveals. That is why the second possibility is implosion.

We will need more innovation, in more forms and from more people, to enable this broader reimagining of what Britain and Europe could become

The Brexit vote will embolden populists and nationalists everywhere. Donald Trump will run Hillary Clinton at least very close in the US presidential election later this year and could beat her. In Europe the next dominoes to fall could be Italy and France, in elections next year. Marine le Pen is banging on the door. That would leave Merkel extremely exposed in her own elections. By the end of 2017 it is not inconceivable that our systems of liberal democracies may have suffered a series of very profound shocks with the rise of authoritarianism, populism, anti-immigration, protectionist parties. Ugly nationalism is the price we will pay for a globalised economy that seems to the losers to be beyond control. Let's say this has, at the moment, a 20 per cent chance of coming true; but the odds on this outcome might shift quite rapidly.

The third option is actually the one that European leaders, including in Britain, should go for: the Brexit vote is a sign that Europe needs remaking, creatively.

That would mean a shift back towards nation states and national democracy as the centres of power but also towards a sense of Europe as a social movement, something people might come out on the streets to campaign for, as they do in Scotland.

It might also mean a new role for a latter-day Hanseatic League of European cities, which have much more in common with one another than they do with much of their national, rural hinterlands. It is Europe's cities that have most at stake in an open, cosmopolitan future. They have to show more combined leadership and more awareness of the need to connect with their hinterlands.

It would mean Europe behaving much more like a flexible and fluid network than a rigid bloc but it could also mean the EU itself having a larger budget, to fund some of the transfers needed to deal for example with immigration.

Most of all it would mean breathing new life into the ideal of a social Europe, built on a liberal democratic principles, a dynamic entrepreneurial economy and social investment in people and places in danger of being left behind.

All of that, however, would depend on repositioning the Brexit vote not as a vote against Europe, but as a vote for a better Europe. Britain might re-enter this dynamic Europe through a second vote. All of that would mean the EU embarking on what the management theorist Charles Handy calls its second curve, a new wave of growth, casting aside some of what has held it back. Sadly, as it stands this may seems the most unlikely of the three scenarios but it should be given at least a 20 per cent chance.

What is clear is that for the better outcome to be possible we will need a different model of a good economy, one which is both innovative and inclusive, which generates not just wealth but a sense of belonging, community and attachment. That will require innovation across many fields simultaneously as we search for a new kind of economy, a new relationship with Europe, a new constitutional settlement in the UK, a new social contract between young and old, the south and the north, urban and rural. We will need more innovation not less, in more forms and from more people and places to enable this broader reimagining of what Britain and Europe could become.

Above all it needs to be a modern economy that also gives people a sense of control over their lives. And we may have to do much of that ourselves because our political leaders seem unwilling, uninterested and unable to do it for us.

Image by Nicolas Raymond via CC by 3.0


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