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U Can't Touch This: the intangible economy and the social divides behind Brexit

Why did Britain vote for Brexit? In particular, why did so many people outside Britain’s largest cities turn out to vote Leave? Even for people who wanted a Leave victory, the divide between urban elites and the rest of the country has become a cause for concern.

Most of the explanations for last week’s surprise result seem to pin the blame on one of two things: neoliberalism and traditional values. But I suspect that both these explanations are too simple, and too reassuring – and that the real reason for the emerging divide is a structural problem which is getting worse.

Let’s take neoliberalism first

A lot of people have argued that the surprise victory of Leave in last week’s referendum was the revenge of people left behind by modern capitalism. The Resolution Foundation showed the link between low earnings and places that voted Leave (Flip Chart Rick's piece is good too.)

 

 

 

 

 

 

 

 

 

 

Austerity, neoliberalism and hyper-capitalism created winners and losers, the argument goes. The losers turned against the elite used the referendum to give them the finger.

When something bad happens, it’s appealing to think that it happened for a moral reason. Social psychologist Melvin Lerner called this the just world fallacy. This makes the universe make more sense (the gist of this piece by Ian Leslie), and offers a route out of our problems (if we embraced fairer government policies, this sort of thing would happen less, as Indy Johar and Diane Coyle argue).

But blaming neoliberalism seems to leave questions unanswered. Why did so many relatively affluent true blue shires vote Leave? And aren’t there a lot of poor “left-behind” people in Britain’s Remain-voting cities too?

This is where the traditional values explanation comes in

Political scientist Eric Kaufmann pointed out that it’s not class and wealth that predict whether someone will vote to leave the EU, but attitudes like authoritarianism and social conservatism.

“Culture and personality, not material circumstances, separate Leave and Remain voters. This is not a class conflict so much as a values divide that cuts across lines of age, income, education and even party.”

Lord Ashcroft’s polling to some extent confirms this, showing that people who dislike things like the Internet and multiculturalism overwhelmingly voted Leave, and people who liked them voted Remain.

Kaufmann considers the question of whether people are socially conservative because of their life chances, but concludes it’s not as simple as that. He points to a Swiss study showing that liberally minded children choose to go to university (rather than the university experience making children more liberal).

Paul Nightingale adds another wrinkle to this story, pointing out that Remain and Leave voters self-select into places that suit them. People who like diversity and technology move to big cities. People who dislike them stay put. Again, values and preferences.

This is a less obviously moral explanation than the “blame neoliberalism” story. But in some ways it is also reassuring. After all, the idea that some people are more traditional and some are more cosmopolitan is as old as the hills. (Indeed, Robin Hanson used the analogy of Neolithic foragers and farmers to explain Brexit.) If long-standing human variation is what’s to blame for the referendum divide, then perhaps we can rely on old-fashioned solutions. Making friends, reaching out, representative democracy rather than referenda.

What if it’s both values and economics?

My suspicion is that neither the “neoliberal economics” explanation nor the “traditional values” explanation is quite right. In fact, it’s a mixture of values and economics.

Let’s start where the traditional values argument leaves off. Some people are traditionalists, some are cosmopolitans. Then let’s add in some economics. Are there any ways that the economy has changed recently that might affect traditionalists and cosmopolitans differently?

As it happens, the answer is yes – and it has relatively little to do with “neoliberal” policy choices and more to do with deep, long-term changes in how modern developed economies work.

Over the last few decades, the capital stock of the economy in the UK, the US and other rich countries has become less dependent on tangible assets like factories, lorries or office buildings and more dependent on intangible assets like software, brands, R&D and designs. As far as we can tell, this isn’t a result of neoliberalism or other political choices: it’s a function of economic growth, technological progress (like IT, which makes intangibles more useful) and underlying forces like Baumol’s cost disease (since tangible assets are often manufactured, their cost will tend to fall quicker than intangibles, which are the result of service activities).

Now these increasingly important intangible assets has some interesting properties when you compare them to the tangible assets on which the economy used to depend. In particular:

  • they tend to produce more spillovers – ie the benefits of an intangible investment don’t always accrue to the business that makes it. Think of how Xerox developed computers with a Graphical User Interface but Apple then Microsoft ended up making all the money. (Exploiting the spillovers of other people’s intangible investments is what business school types call ‘Open Innovation’)
  • they have unpredictable and sometimes large synergies with other intangibles (think of how bringing together a huge range of ideas and deals, from Jony Ive’s design to the iOS software to the plans for the App Store and deals with mobile carriers led to the hugely valuable iPhone)

A world where intangibles are more important will be one where it is really valuable to be able to exploit spillovers and spot synergies. It is a world that rewards workers with a roving eye, who like seizing on new opportunities. As people like the geographer Richard Florida have remarked, these sorts of encounters often happen in busy, diverse cities.

It’s also a world where the ability to make sense of abstract concepts, to argue and to enforce claims will be rewarded, since this is how workers and companies make sense of intangible assets, and combine and re-combine them. These characteristics were identified back in the early 1990s by economist Robert Reich as the preserve of a new class of workers Reich called “symbolic analysts” – a class of professionals that included people from designers to software engineers to lawyers.

What sort of people are predisposed to enjoy and succeed in an intangible economy? There’s some evidence that these types of innovative behaviour are related to the personality trait that psychologists call Openness to Experience (a trait that includes several facets, including imagination, preference for variety, and curiosity)*.

These seem very similar to the kinds of characteristics associated with being a Remain voter; the opposite characteristics are the kinds of characteristics associated with voting Leave.

So perhaps the divide between Leave and Remain voters is the result of two related things. There’s a difference in values, as people like Eric Kaufmann has observed. But there’s also a secular change underway in the economy that on the whole rewards cosmopolitan values and penalizes traditional ones, increasing the divide and building the kind of resentment that some people had blamed mainly on neoliberalism.

So what?

Unfortunately, if this is true then as far as I can see, it’s quite depressing news. If we could pin the blame for social division on neoliberal policies, we could fix the social division by changing the policies. If the divide was just a recurrence of the time-honoured difference between traditionalists and cosmopolitans, we could address it by sticking to the old ways – for example, by avoiding referendums in the future, since by their nature they accentuate these divides (part of the reason, as Paul Nightingale notes, that they are banned in the constitution of Germany, a country that learnt the hard way how democratic systems can go wrong).

But if what we face is an inherent difference among the population the effects of which are growing as the economy inexorably changes, it’s harder to know what to do. It suggests that these sorts of culture-war conflict will become more common over time, and our traditional means of mitigating them less effective.

I’m not sure how we solve this problem. I hope that some of the projects we work on here at Nesta, from new tools for digital democracy to more inclusive types of education, will help. But as a first step, at least we should be aware of it how difficult it will be to bridge this growing divide.

* The evidence is quite complex, not least because the different aspects of the Openness to Experience trait seem to be related in different ways to different types of performance. Stuart Ritchie of the University of Edinburgh kindly shared this meta-analysis with me that goes into some of the detail.

Author

Stian Westlake

Stian Westlake

Stian Westlake

Executive Director of Policy and Research

Stian led Nesta's Policy and Research team. His research interests included the measurement of innovation and its effects on productivity, the role of high-growth businesses in the e...

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