Brexit

The United Kingdom has voted to leave the European Union, catapulting "Brexit" from an annoying fad portmanteau into being perhaps one of the most consequential words in 21st-century European history. Historians will spend decades arguing over its origins, and its consequences when we know them. Among the issues that will be debated are to what extent the digital transformation and the changing shape of the economy pushed English voters to leave the world's largest free trade area. This week's Mondato Insight asks, did Uber and Airbnb contribute to Brexit?

Who's to blame?



One of the main responsibilities of being an expert in any field is to be able to differentiate between correlation and causation. Did one phenomenon cause, or contribute to, a different phenomenon? Or were they just coincidental, concurrent or subsequent phenomena with entirely independent existences? The question, put in those terms, sounds esoteric. However, when it comes to politics and economics, where to apportion blame and heap praise is a question of enormous consequence, for it helps shape the forces that govern society, and for that reason people look to experts to guide them.

In Britain, however, "people in this country have had enough of experts", according to the Justice Secretary Michael Gove, who was one of the troika of leaders of the recently-concluded campaign to persuade his fellow Britons to leave the European Union. And as everyone has surely heard by now, he was successful in that campaign. By a margin of 52% to 48%, the voters of the United Kingdom collectively decided that the country's future was to lie outside of the European Union.

It appears, then, that Mr. Gove was right. Despite warnings from everyone from the Prime Minister himself, the Chancellor of the Exchequer, the heads of the IMF, the World Bank, the Institute of Directors, the Confederation of British Industry, the Trades Union Congress, and the Labour Party, among many, many others, that Brexit (as we must now grudgingly accept as a real word) would be an economically disastrous move, the electorate collectively decided that they didn't believe the experts, or simply didn't care if what they were telling them was true.

Irrespective of political leanings or feelings about Brexit in either direction, this should give pause for thought for everyone living in a democracy. Why, even when told of the consequences of harakiri, did British voters reach for the sword nonetheless? And to what extent did the ongoing Digital Transformation of the global economy play a role?

The role of the digital economy



At first glance, the last question may seem superfluous, but in some respects it gets to the core of Michael Gove's commentary on the role of experts. Mondato Insight, like many other publications, has observed and commented on, in generally positive terms, the rationalization and efficiencies that globalization and digitization (inseparable as they are) bring to markets. The primary beneficiaries of this process are the (in British terms) middle class, who as purchasers of goods and services, see reduced costs and have greater opportunities to travel and work, to get more value out of their salaries.

For wage-earners, however, what we sometimes call in American terms those who live from paycheck to paycheck, the cost -benefit analysis of globalization are not so clear cut. And the parallels between Brexit and Donald Trump's unlikely rise are much more than facile comparisons. Indeed, the panoply of characters in this British farce so closely resemble, individually and in composite, the contenders for the next occupant of the White House that the lessons of the Brexit vote need to be carefully absorbed in the United States and elsewhere.

Two of the key pillars undergirding the European Union and its predecessor the European Economic Community (EEC) are the free movement of both capital and labor. In combination, these benefit, unarguably, the middle class. Increased investment and reduced costs produce wins for consumers, who are freed to trumpet the victory of the market over vested interests. But those vested interests are people, who very often have invested themselves money, time and their lives in industries and business practices that may not withstand the scrutiny of the Digital Transformation.

London's cab industry is a classic example: famed and admired for their "knowledge" (involving studying and memorizing the geography of a chaotically organic city of eight million people), London's cabbies are under intense pressure to fend off an attack on their living standards from a free app that can be downloaded onto any smartphone. And while this has, at first blush, little to do with the E.U., the arrival of Uber coincided with the arrival of large numbers of migrant workers from many former Soviet bloc "accession states", including Poland, the Czech Republic and Lithuania, which has meant that London's taxi drivers are challenged simultaneously by the challenges of transnational capital and labor. Thus a campaign that rouses patriotism and blames immigrants for their economic woes can be clearly appealing. The fact that not many Uber drivers are actually from Central Europe seems to have been lost in the shuffle.


Labor struggle



In England, as in many places, working class voters have felt under pressure from globalization, digitization and immigration. Which specific factors, or combinations thereof, are to blame in any particular circumstance are somewhat by the by. Ironically, while it may be the case that digitization is the chief culprit, it makes for a poor scapegoat: it is difficult to rouse anger at a succession of ones and zeros. It is therefore international capital and migrants who often bear the brunt of resentment, even if on a generic rather than personal level (though it now appears that specific acts of xenophobic and racist violence or abuse are rising in the wake of the U.K.'s Brexit vote.) Neither capital nor technology have a face. Labor does.

Exit polls, however, show that immigration was the key driver in the decision of only one in three Leave voters. Almost half, however, cited the rather more nebulous idea of "sovereignty", an immensely complex subject that is often boiled down to slogans such as "take back control" and "make my country great again." It is easy to get angry at a stiff and inflexible manager. It is much more difficult to get angry at powerful forces without shape or definition which nonetheless are felt to be shaping one's life.

A Clarion call



What happened in the U.K. is a clarion call. Because the future is one where A.I. is going to increasingly take jobs not just from working-class manual workers, but from the formerly-comfortable middle classes. Functions currently carried out by bank clerks and junior lawyers will be in the future performed by robots and computers. The revolution just seen in Britain was one of the working class allied with the upper class to kick the middle class. Capital allied with labor. But that cannot be sustained.

Until now, it is mostly lower-class workers who have faced the brunt and vented their voice. It is just a question time before Digital Finance and Commerce starts to up-end the work structures and lives of people who are now comfortably middle-class. If a working-class revolt against globalization can cause a Brexit, what might be the consequence of the middle classes revolting when A.I. starts making their jobs redundant?

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Mondato is a boutique management consulting firm specializing in strategic, commercial and operational support for the Digital Finance & Commerce (DFC) industry.
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