Britain: Adrift and Sinking?
European Straits #176
Hi, it’s Nicolas from The Family. Today, I’m framing an initial discussion on how Britain is faring in the Entrepreneurial Age. Read, and then subscribe to read Part 2 on Friday 👇
⚠️ My latest column in Sifted is about what I’m calling the “Great Fragmentation”. In it, I discuss the consequences for European startups and those (investors, governments) who back them. Read it here 👉 Time to double down on Europe 👀
🇺🇸 Meanwhile, the US is imploding. It now appears so fundamentally damaged that it cannot serve as a useful example for anyone else—and that’s a problem. We've all been taught for decades, especially in Europe, that we should look to the US for inspiration and direction. But now our future prosperity depends on finding a new direction. Will we find it by looking to the East? By looking at one another across our European borders? By looking back at what we achieved in the past?
🇬🇧 About that, after America 🇺🇸, China 🇨🇳, and Germany 🇩🇪, I thought this would finally be a good opportunity to share a few ideas about how the UK is faring in the Entrepreneurial Age. I’ll follow the same pattern as for Germany: today I’m setting the stage by revisiting British geography, history, and politics; then on Friday, I’ll send my paying subscribers an assessment of the British tech ecosystem. Time to subscribe if you want to dig deeper 🤗👇
1/ Here’s a lesson I received from my English teacher (I was 17 at the time):
I have nothing but two ideas to teach you so that you understand the English-speaking world: The US is a very large country, and Great Britain is an island. That’s it. You know everything.
For a long time, I observed that island from afar. I only travelled there occasionally and for very brief periods, once in high school, another time for a surprise trip we arranged for a friend right before his wedding. What I knew about Britain came, as is often the case for me, through politics. Early in the 1990s, I became interested in Tony Blair’s effort to reinvent Labour and learned a lot about British politicians on both sides (most are now all but forgotten—people such as Neil Kinnock and Michael Portillo).
Later, as a senior civil servant in 2006-2010, I spent time studying how Britain was trying and reinventing its government, discovering the great BBC series Yes Minister/Yes Prime Minister in the process.
Then, in 2015, my wife and I decided to move to London. There were several reasons: Laetitia was moving on with her career and joining a London-based company; my firm The Family was about to open an office in London to deepen our network of investors there; and we wanted our kids to learn English (which they now master better than French). Little did we know that we would live through everything that followed: Brexit, several general elections, and now the pandemic. Anyway, because I like to read about the places where I live, I’ve learned a lot about Britain over the recent years 👇
2/ England was the cradle of two successive technological revolutions: the Industrial Revolution, which Carlota Perez dates back to 1771 (when cotton merchant Richard Arkwright built his legendary Cromford mill), and that of steam and railways. Productivity, an outcome of technological progress, appeared in Britain first, which explains the country’s economic development over the past 250 years. Britain’s racing ahead early became a sort of economic rent that they’re still enjoying today.
The expansion of the British empire in the 19th century was not unrelated to the growth of manufacturing, which imposed enormous tension on land (needed to build more industrial facilities) and labor (a growing number of workers were poached from agriculture to staff factories). The colonies were expected to compensate for the resulting slowdown in agricultural production on the island.
Growing its empire, Britain also became a thalassocracy: a country whose territory is not very large, but which secures control of maritime routes and trading posts around the world. From the 19th century onward, the country’s dependence on foreign trade became so critical, notably with the repeal of the Corn Laws in 1846, that it was necessary to assert control of the main shipping routes across the seas.
3/ Britain fell off its pedestal in the 20th century with its participation in both world wars. World War I saw it join forces with France to help contain Germany. The price to be paid was considerable: an entire generation of young British soldiers was decimated in the trenches. Three decades later, Great Britain did not lose as many soldiers, but it had to withstand bombings by the Luftwaffe and battles on the ground in Normandy, Italy, North Africa. In the aftermath of World War II, the country found itself worn out and overtaken on the global stage by the US and the Soviet Union.
The British realized they had to learn to no longer live beyond their means. They retreated from Asia, leaving Malaya and Singapore as well as India, which gained its independence in 1947. Their strategic goal at the time was to concentrate their power on accessing the essential resource of the moment: oil. Britain’s main strategic asset became the Suez Canal, which they nonetheless abandoned in 1956 under pressure from Nasser’s Egypt and America. The British finally withdrew to their island.
4/ At the same time, the Americans and Soviets had to decide what to do with Europe. The aftermath of WWII saw a showdown between Britain, the great maritime power, and Russia, which was determined to tighten its grip over the continent. At other epochs, Russia’s expansionism had been contained by Britain sealing alliances, notably with Poland. But in the context of the post-war period, Britain was simply no match for the Soviet Union. In the euphoria of victory over Nazi Germany, Churchill begged the US to help him contain Soviet influence in continental Europe.
In particular, the British became obsessed with making France, West Germany and Italy stronger in order to resist Soviet expansionism and prevent the spread of communism in their political systems. Yet as they had absolutely no means to finance such an ambitious project, they had no choice but to call on the Americans—who, in response, decided to implement the Marshall Plan: the allocation of massive resources to finance the reconstruction of Western Europe.
There was a condition, however. The interests of France and Germany (the two continental powers whose rivalry had sparked two successive world wars) had to be irrevocably aligned. The first version of this project took the form of the European Coal and Steel Community, followed by the European Economic Community established by the Treaty of Rome in 1957. This inspired mistrust in the British: they had absolutely no taste for France and Germany overcoming their differences!
But the US left them little choice. Quite simply, there would be no Marshall Plan without European integration.
5/ The best explanation of the UK’s tumultuous relationship with the European Union since then was provided by this episode of Yes Minister:
Really, this has always been the goal: to participate in European construction, slowing it down if necessary and, in certain cases, preventing it from directly harming the interests of Great Britain. Of course, this strategic objective has resonated with various short-term tactical objectives over time. When the UK formally joined the EEC in the early 1970s, it was because Edward Heath wanted to develop trade with the continent. At the end of the 1990s, when Tony Blair chose to intensify Britain’s engagement in Europe, it was to consolidate the position of London as Europe’s financial hub and to hasten the immigration of workers from Eastern Europe.
All of this happened despite a tradition of aloofness toward the continent best incarnated by Margaret Thatcher, who saw the European Community of the 1980s as a hindrance to her ambitious project to radically transform the British economy. Her obsession was less to pit France against Germany than to recover room to maneuver and reduce Britain’s dependency on Brussels.
6/ Why did the British finally decide to leave the EU? There are several reasons:
As documented in Jonathan Coe's masterful Middle England, there’s the xenophobia of a bloc of English voters. This is in reaction to the waves of immigration orchestrated by the Labour governments of Tony Blair and Gordon Brown, destined to provide labor for proximity services, followed by the context of post-financial crisis austerity. The impression of this section of the electorate was that leaving the EU would put an end to immigration.
Another factor is the ascendancy of the old Tory guard in the Conservative Party. The British right has always been divided between two groups. On one side are the so-called Whigs, who promote the values of free enterprise and usually succeed as champions of small business owners and the middle class. (Margaret Thatcher, the daughter of a grocer, embodied this Whig tradition in recent times.) On the other side are the actual Tories: the heirs of the old aristocratic lineages who, because of their heritage and their education in the most prestigious universities, feel that they retain the eternal privilege to dominate others and lead the country. Boris Johnson, like David Cameron before him, embodies this tradition. And for such Tories, the EU is a nuisance: it undermines the authority which they think only they can assert over other Britons.
Finally, another factor that contributed to Brexit can be summed up by one name: Dominic Cummings. Boris Johnson's now infamous strategic advisor is also the former strategist of the victorious Leave campaign in 2016. He's not racist and he doesn’t belong to the old Tory aristocracy, unlike his boss. On the other hand, he thinks—like me and like many among you, I’m sure—that the world is at a turning point, that the shift to a new techno-economic paradigm is accelerating and that it will redistribute the cards. In the eyes of Cummings, it is critical that Great Britain fully recovers its sovereignty in order to be able to reposition itself advantageously in a fast-changing world!
As you can see, Brexit is the result of a collusion between parties with distinct but converging interests: racist voters from the heart of England; the old Tory aristocracy; and geeks like Dominic Cummings. For all of them, the clock had been ticking for too long and delivering Brexit was all that mattered.
7/ And so when the UK was hit by the COVID-19 pandemic, it was immediately perceived as nothing less than a distraction—a detour on the road to Brexit, an obstacle that had to be bypassed as quickly as possible in order to get back on track.
All this explains the distinctive nature of Britain’s response during the first weeks of the pandemic. It seems the initial idea was to get the majority of the population to catch COVID-19 so as to develop “herd immunity” as quickly as possible and be able to resume the march towards Brexit without delay. This was topped by an additional layer of techno-optimism that can likely be traced back to Cummings: the British administration was going to harness the power of technology to contain the spread of the virus and help the sick to recover faster!
Obviously, it didn’t last. As other European countries ordered lockdowns without delay and the British began to fall to the virus like flies, the government was forced to backtrack and normalize its response. Boris Johnson’s reversal was only hastened by his catching COVID-19 himself and, under severe strain (to the point of being transferred to an intensive care unit), he apparently realized that this virus was not as harmless as had been initially believed.
8/ Now that the British are beginning to emerge from lockdown, all attention is again on Brexit, with the pandemic pushed to the background. Worse still, the British have given up on constructive negotiations with the EU and appear to be resolutely preparing for a Hard Brexit—an exit without agreement, which could fail to ensure the continuity of trade with the continent.
There is not much to lose in this approach. A Hard Brexit, as we have known for a long time, will seriously damage the British economy. But since that economy is already devastated by the pandemic, who can believe voters will see the difference once the break with the EU is consummated? In addition, the EU, itself severely tested by the pandemic, finds itself in a weak position in its negotiations with the UK. It is difficult to see what Johnson has to lose by marching toward a Hard Brexit while everyone else on the continent is focused on dealing with COVID-19 and its aftermath.
9/ What should be expected? Three trends in particular are worth your attention:
Once Brexit is done, Britain will find itself on the verge of sinking: broken away from the EU and facing the urgency of restarting its economy. This is when the US will choose to open trade negotiations and obtain concessions which the European Commission would never have granted—such as the ability to flood the market with hormone-trafficked meat or enacting a partial privatization of the NHS, of which US healthcare giants could then seize control. Trump has been explicit about this and the British government will enter these negotiations in the weakest position imaginable.
Another consequence of Hard Brexit could be the undermining of the UK’s political unity. One of the issues that explains the difficulty of current negotiations is the Irish border: the Good Friday agreement forbids the establishment of a physical border across Ireland, and if the UK leaves the European Union, this porous border will be problematic in many respects. This is likely to set off a process which, slowly but surely, can only lead to the reunification of Ireland—just as it is likely that Scotland will at some point again put the question of its independence on the table, reducing the perimeter of the UK to England and Wales alone.
Finally, there’s this fantasy of making London a “Singapore on the Thames”. Singapore is the tiny city-state on the edge of Malaysia that, led by its founding father Lee Kuan Yew, has become a model of economic prosperity and social cohesion. The sad reality (for the British) is that Lee Kuan Yew achieved this feat because he only had to care about the five million people of Singapore, not the tens of millions of people who currently live across the very different regions that together form Great Britain. London, a beautiful, vibrant and cosmopolitan city, is in many ways comparable to Singapore, but the comparison stops there. There is no Singapore possible if London must still drag along the rest of the country and the many problems that come with it—starting with the disparities between regions in terms of regional development.
10/ As an intermediary conclusion, let it be said that Britain will still retain some advantages (apart from the incredible magnet that is London):
Britain’s main asset, I think, is the English language. It puts Britain on the global map; it makes the local business community more exposed to ideas and influences from abroad; it facilitates trade with many parts of the world; and it attracts the best and the most ambitious entrepreneurs, who still consider London the best place to build great companies in Europe.
I wrote above that trade negotiations with the US post-Brexit will impose quite a lot of pain on Britain. However, over the long run, it can pay off to be the bridge between the US and Europe—just like Hong Kong long prospered by being the bridge between the West and China. Obviously, it all depends on what becomes of the US and of the relationship between the UK and the EU.
Finally, having just spent 5 years living in London, I have had the pleasure to discover that the local tradition of innovation, on both the business and the institutional sides, is alive and well. So far the toxic politics have refrained British innovators (and immigrants attracted to that tradition) from revealing their true potential. But this could change in the future.
You should subscribe to read my assessment of the British tech ecosystem and what I think Brexit’s impact will be on the startup world, to be sent on Friday to my paying subscribers 👇
In the meantime, I’ll let you ponder this tweet:
K.A. Dilday, a writer and editor based in New York, happens to be married to an “Old Etonian”. As such, she spent several years in the UK and has unique insights on the extreme social stratification that still rules the UK to this day. Her writing helps explain what makes the English society so distinctive.
Simon Kuper, a sports columnist at the Financial Times, sometimes wanders beyond his passion for football and offers a compelling perspective on what makes Britain tick. His living in Paris makes his views all the more valuable—always better to observe your own country at a distance!
Nate White is a London-based copywriter in the advertising industry. I couldn’t find much about him online, but he wrote the most hilarious essay on why the British hate Donald Trump so much. Hint: it’s mostly about humor and enjoying a good laugh.
Peter Zeihan (again), an American geopolitical strategist, wrote the definitive account on the lessons we can draw from the history of the British Empire and what will become of Britain in a post-Brexit world. The key is that, in the grand course of history, what was lost can never be regained.
👉🏻 To discover their articles and many others related to today’s edition, become a paying subscriber! The package will be sent to subscribers only with the forthcoming Friday Reads edition 🤗
From European Startups Don't Really Care About Brexit (Forbes, November 2018):
Startups are used to obstacles to doing cross-border business. There’s a general idea that the European Union is a single market, but this is only true, and even then only to a certain extent, for singular industries such as tangible goods, airlines, energy and railways. On the other side, many other industries such as healthcare, urban transportation and real estate are still highly fragmented in terms of language, culture and regulations. This doesn't prevent tech entrepreneurs from trying to grow pan-European businesses in those industries. But cross-border gaps and frictions are already a reality for many startups, and Brexit will hardly make things worse.
And in case you missed it:
Challenges of a Remote Workforce—for subscribers only.
The Brutal World of Darwinian Economics—for subscribers only.
Launching My Executive Sparring Practice—for everyone.
China Drifting Away?—for subscribers only.
Notes on Germany in the Entrepreneurial Age—for subscribers only.
Is Germany Nearing the Abyss?—for everyone.
The Rise of a New China—for everyone.
Adieu to Old America—for everyone.
From Normandy, France 🇫🇷
Nicolas
