Brexit and the Leadership Equivalent of Empty Calories

AI is transforming the world and it starts with the right compute ARM is the AI compute platform trusted by global leaders, Proudly NASDAQ listed, built for the future. Visit arm.com discover. Welcome to the HBR IdeaCast from Harvard Business Review. I'm Sarah Green Carmichael. Our topic today is Brexit, the recent vote by citizens of Great Britain to leave the European Union. We're recording this Tuesday, June 28, and a lot could change and likely will change in the coming days and weeks. Still, we know this vote reveals deep divisions in Britain between working class voters and the so called elite of cosmopolitan wealthy leaders. Britain is not the only country facing this sort of division. Other European countries are also showing rising populism and nationalism, isolationism and partisanship. This is creating a lot of volatility, uncertainty and anxiety around the world and is raising big questions right now about the future of the European Union. Will it stay together, fall apart? And what, if anything, can leaders do now to get it back on track? In short, what kind of leadership does Europe need right now? There's a lot to untangle here, so joining us to help with some of that untangling are two of my all time favorite IdeaCast guests. The first is Mark Blyth, the Eastman professor of Political Economy at Brown University. We're also joined today by Gianpiero Puglieri, Associate professor of Organizational Behavior at insead. Mark, let's start with you. A month before the vote, you predicted this would come to pass. Why were you so confident in that?

For the simple reason that no one actually talks to the people who are really going to vote. Do you honestly think people in Sunderland are sitting there reading the IMF or the OECD report, looking at GDP projections, worrying about what happens to London banks if they lose passporting rights? No, they're looking at the world from their life experience and their life experience is light years removed from the very people who are swearing blind that no one would be daft enough to do this. Now, when you have that degree of disconnect in a society between its chattering classes and its investor classes and those who are very much on the bottom of the pile, you're in for a shock that was written into the script and was actually quite predictable.

So, Giampiro, I want to know how all of this strikes you where you are sitting in France.

I think a lot of us weren't expecting this to happen. Frankly though, I don't think it's difficult to predict. When you see the level of anxiety. There is actually the gap and disconnect between the nomadic elites and the people who live a much more rooted local life. When you have this kind of tension and you put something like a referendum on a question of national identity in a place like Europe, which is not discovering nationalism over the last three or four weeks, then you're likely to see an outcome such as this. And you're also likely to probably oversimplify the categorization of people because even when you talk about this cosmopolitan elites, let's not forget that not everyone who's mobile is is a billionaire who's just living in a penthouse in Park Lane or on fifth Avenue. Very often what you're talking about is talented people who are we could basically describe as the new European middle class trying to make a career up the ranks of very precarious careers in multinational corporations and for whom this represents a tremendous blow and who certainly have a few more opportunities than the Sunderland people that Mark was talking about, but who certainly aren't sitting on a hedge fund laughing at the silliness of world affairs.

So there's been a lot of acrimonious discussion about kind of and name calling between both sides and it seems like that is only worsening the divide that led to this in the first place. Where do we go from here?

So you know, where do we go from here? I mean, let's think about this for a moment. To understand where you go from here, you have to figure out how you got to here. And we've spoken a little bit about the disconnect between classes. We could also talk about the disconnect between generations. But there's another story. Think about where Britain was. Britain is a large economy that sat on the side of Europe geographically and it was never going to take the euro. Now all of the problems that Europe has landed itself with since the beginning of the Great Recession, the self enforced double dip Tricia raising rates in the middle of a recession in 2011. LTRO is now non performing loan problems despite all of the money chucked in through QE. 20% unemployment in the periphery, 10% unemployment in the core. None of that happened in Britain. They stopped squeezing their economy unnecessarily in 2012, despite the rhetoric of Osborne. They're never going to take the euro. It was never going to happen. So they sat there as this kind of intermediary between the dollar zone and the eurozone. Their banks were passported, they made money off their financial sector. The growth rate was twice the European average at some point and their unemployment rate was the lowest and almost the lowest in the block. They had everything, they were in the sweet spot to influence everything, and yet they threw all that away so that in the name of sovereignty, they could negotiate a way back in that's going to be worse than where they started. It's truly mind bogglingly stupid.

There are two lessons there. One is it's a collapse of leadership on enormous proportion. One is once leaders or so called leaders promise people that they can push the undo button on globalization, all they're offering them is really a self destruction button. And that's what's happened there.

It's a cynical move. It's definitely, especially with the benefit of hindsight, a cynical sort of move.

Now the question is, you know, you're going to have to rebuild. You know you're going to have to rebuild some narrative that doesn't push Britain so far out that it can't at some point rejoin or reconnect in some form with the European Union. And then again, we could have a whole other conversation about, you know, is this about Europe as an economic project or is it about Europe as a cultural project? For people like me who came of age with the fall of the Berlin Wall, this is almost unthinkable.

But let's pick that up for a minute. Let's think about two things that Europe has done. Number one, it has grotesquely mishandled its collective economic policies in the aftermath of the Great Recession. So Europe itself is not looking too great. Now this brings up interesting possibilities because although all the tough talk is there about punishing Britain and getting them out as quickly as possible, Britain particularly given the size of its banks and its interconnecting of its banks with Europe, Britain's too big to fail. So if you kick Britain on the way out, you're going to harm Europe at the same time. So this has to be delicately managed. But this also speaks to our second problem. It goes back to the cultural one. What exactly is the language that the entire political elite of Britain and Europe are using at this moment? Fear. Punishment. If the only way that you can keep people inside Europe is by threatening punishment, you've already lost. I have yet to hear a positive argument about what this is for. And the positive argument is there to be made, in my humble opinion, which is never so humble, but I'll call it that. But in my humble opinion, the Euro is a disaster, but it's very difficult to undo it. So we're going to have to reform it. But the European Union has been a fantastic political project and that has brought democracy and rule of Law from the Atlantic to the Urals. That's incredible. And we're in danger not just of forgetting that, but of losing that for the worst possible reasons.

Absolutely. I mean, this is where you see leadership doing only half their job. Because, you know, good leaders usually do name the fear. They very often work from fear, but then they provide the hope. And what you're seeing here now is leaders that are not just naming the fear, they're exploiting the fear without providing any kind of hope other than totally irrational hope. The kind of hope that you generate by stoking, you know, lingering totalitarianism. The kind of hope that you generate by, you know, telling people that we are good and they are evil. This is sort of the leadership equivalent of empty calories.

One part here is that people are arguing the leadership equivalent of empty calories, sort of motivating people through fear. But on the other hand, on the other extreme, the people sort of making the case to stay in the union are offering an argument that's sort of like a dry kale salad. It's like data and economics, and it's just not very exciting.

I mean, who likes kale salads anyway? Outside of certain restaurants in the cosmopolitan.

Elite likes kale salads.

Exactly. Exactly. So how do we sort of resolve this paradox? How do we find the happy medium between, you know, Twinkies and kale?

Look, one thing that we need to do is, you know, building on what Mark was saying is we need to stop a purely instrumental argument for leadership. So unless we can restore an understanding of leadership as a cultural enterprise, as an enterprise that's willing to take a stand for cultural benefits and argue for the economic sacrifices that are needed in order to sustain those cultural benefits, then it becomes impossible, because everyone that does it is automatically labeled as not being a leader. And second, we often praise leaders who got their way, regardless of what the goal was. And I think one of the biggest challenges we have now is people that have the title leader on the COVID of a newspaper. But most people don't feel represented by. And if you don't trust they don't feel represented by a leader. Those are leaders by name only. So what we would need to see is the emergence of leaders who can actually connect the needs of different constituencies in this crisis, and not perhaps by some grand vision of uniqueness and salvation, but by some story that gives the losses, the sacrifices need to be made in order to stay together meaning. And, you know, we don't have to forget that Europe was, at its origin, was. That was a story that was going to allow us to keep in check in our worst days and overcome in our most idealistic moments the divisions that are led to centuries and centuries of war. And it has been successful on that.

Exactly. And I'd love to echo this one. This is so important. Right. The problem with the sort of the post Cold War generation is precisely that we forgot how bad it was in the 1920s, 30s and 40s. It was truly awful. And Europe paid an enormous part of solidifying that. Not just keeping a lid on these forces which are so easily reignited, as we can see at the moment, but in a sense transforming large parts of the European body politic. But the problem was exactly this failure of leadership to build upon this and make the positive case for it. So much so that Europe became a bit of an empty signifier. And a good example of this was the failure to ratify a European constitution turning into a giant legal document nobody could understand, it could be demonized. And also the simple inability of European leaders to stand up and say, well, we are essentially a liberal, democratic, secular political community. Here is our Bill of Rights, here are our values. This is it. Like it or lump it, to actually be something that people can say, yeah, I'm for that, I'm on board with that. Or not to stand as a political entity, but because politics are related to the nation state and stop at the border with the voting booth. The problem is no one wants to give up that type of sovereignty. And when they don't give up that type of sovereignty, the ability to transmit that cultural project fills away, as the French say, there is no votes in Europe. Don't talk about it. Which is precisely why they don't. But if you don't talk about it and yet you act in it, you devolve the entire thing to a bunch of technocrats who rule by the rules, govern by the numbers, and enforce policies which, as we saw in the Greek tragedy last year, you're going to 61% of a country saying, please stop destroying my economy. And the answer is no. We'll turn off liquidity to your banks and you will do exactly as we say, which completely undermines faith in the project.

Well, so I think that raises a sort of interesting higher level question here, which is the role of the elite leadership class here. Right? It does seem that the leadership establishment is very, very out of touch with a significant number of people that they are trying to lead. You see that in the US Too, it's been a topic of endless discussion as we've gone through this Endless presidential primary season with political establishments freaking out about their voter bases not doing what they want them to do. One of the things I keep coming back to, for instance, is the slogan of the Leave campaign of take back control. This whole theme of taking back control, it's not just about taking back control from Europe, it's about taking back control from this out of touch leadership class. So how can leaders do that? How can they restore people's trust? How can they bring this broken doll back together again?

Well, I mean, I think the whole take back control was more like give it away. It takes back the illusion of control, maybe.

Right. Which absent any actual control, the illusion of control would be preferable.

It's still worth something. It's still worth something. Yeah, it's definitely still worth something. It really falls upon leaders first to put themselves in the shoes of those that have clearly not just misunderstood, but frankly ignored. I think ultimately, until leaders find a piece of themselves that has something in common with the people they're trying to lead, they cannot call themselves leaders. And the kind of leadership that we are seeing emerge is actually more and more polarizing. So it's leaders that say, let's just stick among ourselves. And the kind of leadership we need is to say, look, I actually can understand your perspective, but I also can understand the different ones. These are leaders who are not necessarily authentic to a singular story, but who are actually able to credibly understand and represent more than one story. These are connectors much more than visionaries. Look, Sarah, in Europe we have seen the European people transcend very, very, very painful divisions that lasted longer and were much more painful than two or three days of the markets crashing. So it's not like we don't have the history and we don't have the capacity to do that, but we desperately need people to appeal to that capacity to remind us that we have done it and we can do it again.

Right. I just wonder, sort of what other shoes were waiting to drop. Mark, what are your thoughts?

Well, you know, I'd agree with a lot of that, but also, you know, my inherent sort of, how can I put it, reluctant Marxism of the moment comes to the fore here, which is there's an economic base to all this that gets in the way, which is our actual life experiences that we need to connect to have become so violent, so incredibly different. So imagine the following life experience. I grew up in a working class, very poor household, quite on welfare in the east coast of Scotland. Everything's free, right? My school's free. I get to Go to university for free. Hell, they even give me a grant. I got to do a PhD for free. I came to the United States. I've had an incredible life right now. If I were to try and do that, I would be £9,000 in debt the minute I tried to get to college.

Same here.

Let's go for the guy who Trump's appealing to here in the US We've got somebody who, let's say they used to work in Detroit in the 1970s. They were earning 29 bucks an hour then, might have been overpaid, but there you go. The job is sent abroad. So they get a job working in a call center, that job is sent abroad. So they get a job working in Amazon, they pick up the paper and they find out some guy at Harvard's Business Review is writing about how they're all going to be replaced by robots. This is more than connection. You've got to give people a positive vision that the life that they're leading isn't basically what's. How can I put it, zero sum against the profits that you're making. And we're very dangerously close to a world where large parts of the working classes of the developed world have seen so little in terms of real income gains at the same time as budgets must be cut, which basically means they get less, while taxes must be cut, which means that people like me get more. That this is very, very dangerous and very unstable.

Well, I think it's interesting because I'm hearing from you guys policy solutions and policy issues. But I think the bottom line I'm hearing you say is that there is a sort of deep personal component to this crisis in the European Union as well.

Absolutely. Someone like Mark, someone like me, I come from the European south and, you know, I arrived to study English in England 1415. And I'm part of the class of people who were, you know, serving food in the pub and, you know, small French entrepreneurs open a bar. The Spanish chef who actually whose youth was opened up by being part of the European project. For us, Europe did spell opportunity was a way to get out from what was not necessarily a world which provided many opportunities. And I think one thing that honestly, people like me have got wrong is that because we benefited so much from mobility, from this opening up of borders, we've assumed that creating opportunity means giving other people who might not have this chance a chance to see that this kind of path exists and making paths possible for them to join it. And what we might have missed is that there are people who wouldn't choose this kind of path even if they had an opportunity to. And then what's in it for them?

So what is it that you guys are sort of ideally best case scenario, hoping to see in the next few.

Months as far as Brexit is concerned? I hope that there's a giant amount of collective buyers remorse and that everyone remembers that Britain has no written constitution, that referenda are not binding, and that if you go down this road, here's the nightmare scenario that I haven't seen priced in very much. If you're going to honor the 51% who voted to get out over the 49 who said no, then you have to honor the 61% in Scotland who said, I want to stay. And the same for Northern Ireland. And if you hive off those two parts of the United Kingdom, what happens to the nuclear weapons, the submarine bases.

Right, which are in Scotland, the commitment to NATO?

What happens to the G7 seat? What happens to the UN seat? Are you really willing to give all that up to get back some imaginary conception of sovereignty from Brussels? Because if you are, you deserve what's coming next.

On that note, d', Ampiero, what are.

Your thoughts that this comes to be perceived and understood as a giant wake up call about our vulnerability to make rash, irrational choices on the basis of anxiety. And you know that that generates a sort of, you know, same as Marduk generates a will to think about. Okay, how do we honor the perspective that this gives us without necessarily giving in to the enormous self destructiveness that this can potentially open up? In the same way that sometimes when people have an illness or a little brush with death, they often become much more clear about what's meaningful to them and what's not. And they're actually able to think, not just to feel more clearly about what matters. So let's hope that this is sort of the last of the dissent into sort of an us and them narrative rather than the beginning of it.

Thank you both for taking time out of your very busy schedules to talk with me today. I really appreciate it.

Always a pleasure, sir.

Thank you.

That was Mark Blyth of Brown University and Gian Piero Paglieri of INSEAD. For more analysis of the Brexit vote, visit hbr.orgsam.