Brexit Max

Teresa May’s speech this afternoon was neatly lampooned by the Financial Times on Instagram

Outside the London bubble

A quick trip north provided me with a couple of consumer insights from outside the London bubble.

Business winners

Discount supermarkets – last time I was in Aldi and Lidl they started featuring brands we’d recognise like Kelloggs cereals. This time there has been a move away from recognised brands.

Untitled

Instead, there has been a drive on premium private label products at discount retailers. Consumers have been primed by the likes of Sainsbury’s, Tesco’s Finest and Marks & Spencers. Specially Selected is Aldi’s take on premium private label.

Untitled

It is largely indistinguishable from other supermarket premium offerings.  Shoulder surfing at the checkout allowed me to see premium products sprinkled throughout other people’s trolleys.

Private cab consolidation – Delta Cars was one of a number of private hire cab companies in the Merseyside area. Taking a leaf out of Uber’s book, they now have their own app.
delta

They also have scale and muscle, a number of prominent out-of-home display sites were covered with ads for their app and looking for new drivers. In an area of high unemployment there was a veritable war for ‘talent’.

Secondhand phone shops – in Birkenhead town centre there were four resellers of pre-owned mobile phones. iPhones seemed to do well mainly because they were built to last. Feature phones commanded a premium in comparison to what you got for the the money in a smartphone.

zanco fly

These shops also sold really small Chinese-OEM branded GSM phones.  A quick Google shows that they are used by prisoners because they can be hidden on, or in their body.
Untitled

Entrepreneurs have made this connection obvious by branding their device HMP – complete with a crown. British prisons are known by the suffix HMP. For instance, HMP Pentonville.

These secondhand stores also seemed to do a decent trade in pre-owned DVD and to a lesser extent Blu-Ray discs. My Dad didn’t know any people at work who had Netflix. I am going to bring the Apple TV back  one time, just to see how they get on with it.

Bargain and close-out stores – B&M and Home Bargains are two local brands that have a mix of discounted products from close out DVDs and packaged consumer goods. They often have special pack sizes for items like breakfast cereal. They move away from the Poundland format however also selling electronics goods since they are not restricted to the £1 price. These stores seemed to have the most foot traffic of any I’d seen.

Pound Bakery versus McDonalds. The Pound Bakery and Pound Cafe provide Greggs-type fodder. The interiors are bright but comfortable. They seem to have stolen at least some foot traffic from the local McDonalds.

Secondhand clothing – just off the main shopping area was a shop that bought  clothing by weight. It was sorted through – a select few items going on to be sold for vintage, the rest going to be sold abroad or recycled for industrial rags. Trade had been particularly brisk as people wanted money for Christmas. In general, the quality of the haul was disappointing as overseas buyers were not interested in H&M or Primark.

Business losers

Petrol stations – there was surprisingly little night time traffic. Consumers are reining in non-essential journeys. Which then begs the question is M&S Food’s move on to the garage forecourt a wise move? This also had implications for night life since people were going out less.

Cultural winners

  • Can’t pay, won’t pay – other people’s misery seemed to be popular entertainment.
  • Shopping television – in particular Idealworld seemed to be a popular back drop instead of talk radio. Talk radio was thought to be ‘too angry’ since Brexit

 

Working class truths, populism and dark futures

Following president Trump’s election and the British plebiscite on European Union membership there has been lots of hand wringing about workers who traditionally participated in legacy industries being outside society.
We won't pay for their crisis - Mancunian protest sticker
Here is what we have to deal with:

  • The ‘traditional’ jobs aren’t coming back
  • Middle-class roles are already being disrupted
  • There is a declining  return on investment in further education, yet lifelong learning is a compulsory requirement
  • Globalisation is working at an aggregate level, but isn’t working at a local level
  • Western society has fractured. It will become more fractious once the realisation takes hold that:
  1. It can’t be resolved by simple measures, populists might listen – but can’t solve anything. Jobs are governed by a multiple factors that affect both cost and demand considerations
  2. It can’t be solved in a relatively short time frame. You can’t build the necessary eco-system and supporting industries to bring the jobs back; even if the economics made sense
  3. Governments don’t have their hands on the levers of control, the best governments can do is actively manage decline. Technological disruption puts the levers of control with a smaller group of people
  4. There is a lack of willingness by those with the money and the power to solve it – primarily due to the pressures that drive their behaviour
  5. Existing social welfare safety nets aren’t sustainable

The realisation that populism doesn’t deliver is likely to cause a further visible outburst of anger. Which should be good news for the private security industry. This could result in civil or international conflict. It has already happened. Factors that contributed to the Arab spring and the Syrian civil war included a large under-employed population living in stagnant economic conditions with no hope in sight. This probably sounds familiar.

I am ruling out some sort of positive ‘black swan’ event which changes the game completely and provides meaningful work with great wages across societal boundaries. If I could reliably predict these, I would be writing this from my private Airbus A380.

Instead I can see four broad categories of outcomes, all of which are ugly:

  • Carry on – carrying on isn’t likely to be sustainable as societal pressures go to breaking point
  • Managed decline – from a rational point-of-view the most ‘possible’ solution. Unpalatable from a voter perspective. It begs the question at what point would the UK economy bottom out? Managed decline makes the most sense as an interim measure whilst a country works out what its new place in the world is and charts a path towards it based on careful strategic investments with limited capital
  • Massive investment – presents a number of challenges that make it nearly impossible for western countries. It would require a long term view – unlikely without consensus driven politics with a high level of comity, huge access to credit – again unlikely with highly indebted economy and a slowly declining credit rating like the UK. Would take too long to satisfy angry voters
  • Massive disruption – the dice is thrown in the air as society tears itself apart and the strong gain control – think China’s Cultural Revolution. Wages and worker rights may drop to make them more cost competitive for low skilled manufacturing allowing for an employed but disgruntled workforce. Power is unlikely to shift too much, the corresponding upheaval in population numbers may provide some supply side pressure on wages when its all over. In all likelihood, it would just reduce pressure for change, increased willingness to work together on a longer term solution, but not provide much medium term economic benefit

Disruption

Here is a chart of numerous successful business, some of them are over a century old. AT&T and Verizon can trace their history back to 1877 and the Bell Telephone Company set up by Alexander Graham Bell’s father-in-law. General Electric goes back to work by Thomas Edison in 1880. These companies took from 117 – 137 years to become $200 billion businesses. Facebook took ten years requiring only 3% of the people AT&T needed.

It would be reasonable to assume that the future is going to create less jobs with given investments rather than more.

Company #Employees Year its market capitalisation became US$200 billion
Facebook 9,199 2014
Microsoft 27,000 1998
Apple 46,600 2010
Alphabet (Google) 46,600 2012
Amazon 165,000 2015
Verizon 176,800 2014
General Electric 239,000 1997
AT&T 302,000 2007

So large private enterprises will:

  • Employ less people which means less ancillary demand for services in the locale. Less restaurants, shops, artisanal coffee shops, micro breweries, nail bars, car valets, hotels and hair salons
  • Employ even less unskilled people – what unskilled labour is required will be employed on a flexible basis. Their roles will be competing on ‘total price’ with a global workforce and robotics

This hypothesis is supported by data from the MIT Technology review which showed that modern US manufacturing managed to increase productivity by 250% whilst reducing staff numbers by over 40%.

Win-Win to Winner Takes All

Technological progress and globalisation has resulted in a decline in the middle class in western countries. Pew Research claims that the US middle class declined from 61 per cent of the population in 1970 to 50 per cent by 2015.

Corresponding average ‘real wages’ for US ‘good producing’ workers peaked by the mid-1970s and have been broadly stagnant since. A pattern mirrored in other developed economies. Hong Kong saw a similar peak from 1967 riots through to the early 1990s until factories moved across the border.

Manufacturing productivity had grown steadily over that time. You can argue over the data points but the overall trend seems to hold true.

Owners of capital have enjoyed increased returns versus the providers of labour. Knowledge work, a key part of middle class roles could be easier to export than production lines. A classic example is the bank back office roles that have been exported to India.

Supply chain

At the moment UK manufacturing jobs operate as part of a complex supply chain that primarily addresses the European Union as a market. The supply chain is built around a number of factors:

  • The value of the product
  • The weight of the product
  • The volume of the product
  • The cost of shipping versus the cost of production
  • How well the product travels
  • Distribution of product demand
  • Proximity to suppliers
  • Proximity to talent

This is why companies may package a product in one country and manufacturer in others. Washing powder is a classic example of this. Chocolate travels well, so Cadbury could move production lines of internationally popular products to Poland. There is a greater incentive to move low skilled work out of areas that aren’t geographically central to a given supply chain.  European freedom of movement may have kept jobs in the UK by allowing low and semi-skilled workers to move rather than the factories. This would be of little consolation to UK workers, but would benefit UK tax coffers.

This complex formula is the reason why jobs move in and out of the UK.

Cutting the UK out of this supply chain with a hard Brexit ensures that suppliers have to make complex choices. BMW will probably be wondering what UK presence it needs to maintain in order to keep the Mini brand values. It may decide its easier to evolve the quirky Britishness out of the brand over time and just keep it quirky. The Audi TT hasn’t been harmed by actually being assembled in Hungary.

The majority of components in the supply chain for the Mini production line is based in Germany.

A post-Brexit UK could be in the position of importing more rather than less products once companies take into account the bigger picture of the supply chains and the EU single market.

Role of eco-systems

Richard Florida is a Canadian professor who has spent much of his time looking at urban studies from the perspective of prosperity. He is known for is work around the creative class and urban regeneration (or gentrification). His work is controversial. One key concept he has of relevance to working-class communities is one of ‘clusters’ where eco-systems exist.  When you apply it to traditional working class industries one can see how the jobs aren’t just going to come back. The UK has a series of traditional clusters that are in overall decline, this is best illustrated by the state of chemical, oil refinery and coal sectors which underpin a wide range of manufacturing industries.

Where new clusters spring up (Silicon Roundabout and the FinTech businesses within the Square Mile) they create employment that much of the UK population is ill-equipped to fulfil.

Let’s look in greater depth at traditional manufacturing industries.

Factories build on suppliers, who build on raw materials processors, who build on utilities and extractive industries. Take for example industrial revolution era Stoke-on-Trent which was close to high quality clay pits and coal that could be cheaply shipped in from mines in Lancashire or South Yorkshire.

Unfortunately for Stoke-on-Trent; clay is readily available around the world, opening up the possibility of production in areas with cheap labour. Automation raised the quality of production and fashion can quickly dictate whether an ‘area’ brand is in demand.

If we look at the industrial landscape of the United Kingdom, the manufacturing industry has been hollowed away during the 1980s and 1990s. The UK lost 18% of its manufacturing capacity in the space of 18 months during the conservative government of Margaret Thatcher.

There has been a corresponding (likely terminal) decline in the necessary facilities to support an industrial economy. Now let’s look in-depth at three essential types of facilities that underpin manufacturing:

  • Oil refineries
  • Coal mines
  • Chemical plants

This base of the UK industrial eco-system is running on ‘life support’ in critical areas.

I was fortunate to have a great science teacher at school, he once said to me that you could measure the size and health of an industrial economy by the amount of sulphuric and hydrochloric acid it manufactured and consumed. In order to manufacture hydrochloric acid you need a chlorine gas plant – neither chemical is something you want to transport over long distances. The side effects of a leak would be catastrophic.

The UK currently has one plant to make chlorine gas that is government subsidised because there isn’t a sufficiently large industrial base to support continued profitable production. What industrial capacity is in the UK is perilously close to being snuffed out.

What is left of the UK chemical industry has consolidated in the North East of England Process Industry Cluster (NEEPIC). Some of the products created are intermediary chemicals for use elsewhere in the European Union. Brexit is likely to have a disruptive effect on some of these manufacturers. The cluster is a key reason why Nissan decided to build a manufacturing plant in Sunderland. NEEPIC is dependent on oil refining capacity for key chemical building blocks (feedstock).

Oil refineries are considered by the public as providers of petrol (gasoline), diesel and jet fuel. The reality is that they provide feedstock (chemical building blocks) for most things in everyday life:

  • Foods
  • Medicines (or we can go back to leeches and blood letting)
  • Paints (containers, large manufactured goods, civil engineering)
  • Plastics (the modern world as we know it) – structural plastics, coatings, fibres including clothing textiles

As I write this is, it is easier to look around my desk and count the products that don’t have an oil-derived input – one item, the desk itself which is unpainted. Though I would put good money on it that the trees it was made from were felled with petrol chain saw and transported on a diesel powered lorry to the saw mill.

Yet the UK has lost a huge amount of oil refining capacity. From 1974 – 2012 refining capacity almost halved from 148 million tonnes to 77 million tonnes (Energy Institute). This decline happened despite start of UK North sea oil production in 1975.

Peak production on North Sea oil occurring in 1985 and 1999 (two peaks due to technological innovation). There were 22 active oil refineries in 1974, at the time of writing there are now seven.

Part of this was driven by changing energy consumption such as the decline of home heating oil and more fuel efficient cars. But a good deal would be due to reduced ability to compete against foreign petro-chemical feedstocks and reduced industrial capacity.

Oil refining capacity has moved to closer to where the industry is.

Belgium and the Netherlands have oil refining capacity beyond their internal needs because of their ease of access to continental European markets. Germany as Europe’s industrial powerhouse has the largest refining capacity in the European Union – which matches its industrial economy.

Much of the capacity to provide chemical feedstocks for industrial use has moved to the Far East; notably Singapore, Japan, Korea, Jamnagar in India and China. Overall industrial production has moved to East and Southeast Asia.

Coal production in the UK is roughly 10 percent of what it was in 1980. There are no deep coal mines active in the UK, only a handful of open cast mines. Coal is not only useful as a fuel but also a alternative supplier of feedstock for a diverse range of products including fertilisers, plastics and medicines. Even if coal comes back to prominence as oil reserves run out it would take a lot of effort to get UK production going again – perhaps too much effort.

Managed decline

The purpose of managed decline would be to concentrate efforts where they can make the most impact. London would draw in more people from the hinterlands. Cities like Liverpool would continue to decline in population. Low quality housing (think trailer parks or shanty towns) would cater for the internally displaced workers and there would be a likely increase in casual or gig economy roles.

So what would managed decline look like? We have a clue from government discussions after the 1981 Toxteth riots. Lord Geoffrey Howe wrote a letter which was considered too controversial at the time

“I fear that Merseyside is going to be much the hardest nut to crack,”

“We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.

“It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.”

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

Howe realised that even discussing the concept at the time would be explosive.

In practical terms, it would mean:

  • Re-centralising government departments
  • Not spending on infrastructure beyond critical maintenance
  • Rationalising government support infrastructure: police, hospitals, social services
  • Re-zoning areas from a planning perspective to encourage development only in future clusters
  • Allowing local government to go into bankruptcy protection and under go US-style emergency management
  • Once population decline hits a critical mass, turning off the last services, rather like the city of Detroit has done
  • Focus infrastructure investment on ‘clusters’
  • Connecting benefits to re-location

This process would then give time for western countries; in particular the UK, to re-invent themselves and think about their economic purpose in the world beyond consumption.

The Chinese government have already started on this process whilst their economy is still in a high state of growth – looking to move up the manufacturing value chain, moving into the professional and financial services sectors that the west currently occupy. On the flip side they have not flinched from closing down excess capacity in the steel industry and low value industries. This is causing economic hardship amongst unskilled workers in Guongzhou and the steel towns of Hubei province.

Former clothing factories are being bulldozed to make way for corporate campuses. Small electronics factories in Shenzhen are making way for a financial services centre including a stock exchange.

If one thinks about the Chinese experience and their migration to higher value work, where would the UK go next?

More information
The Current Moment | Poverty, Inequality and Productivity
Manufacturing Jobs Aren’t Coming Back | MIT Technology Review
The American Middle Class Is Losing Ground | Pew Research Center
Toxteth riots: Howe proposed ‘managed decline’ for city | BBC
Detroit’s Least Bad Option | The New Republic

Out of home ad inventory in the run up to Christmas

I started to notice advertisements on prominent out-of-home placements indicating that there was ad space available in the run up to Christmas.
UntitledI guess it must be a measure of how confident businesses are feeling post-Brexit. And it doesn’t begin in earnest until next year.

The September 11 post

15 years ago I worked agency side in Haymarket in London’s west end  for Edelman. It was a normal day, well as normal is it gets when you are in the middle of the dot com bust fallout.

My job meant working on communications programmes for the European subsidiaries of technology companies. This was to reflect a ‘business as usual’ face to their customers. This allowed the subsidiaries to keep their businesses largely intact so that they could be sold off to help bail out the financial hole that the parent company had made.

The businesses had grown on generous venture capital payments, share placements and bank loans. The dot com bust suddenly meant that there was a surplus of servers, network switches, bandwidth, commercial space and Herman Miller Aeron chairs.

Due to the nature of the business I worked closely with colleagues on the finance team because I spoke ‘geek’ and understood how screwed these clients happened to be.

The financial and corporate teams worked for a number of clients, notably Cantor Fitzgerald. They were to lose two thirds of their personnel by the end of the day.

It was early afternoon, when I realised that something was up. We had TVs around the agency that often weren’t on. This time they were all turned to Sky News, which was running the footage. After the troubles and bombings in Beirut, it wasn’t a complete surprise to see another landmark attack – at least at first.

Once the scale sunk in, then the realisation of how different the world was going to be started to dawn on me.

The confusing Labour brand

Ok lets ignore for a moment the divisive nature of the current leadership battle. Or a membership that is fractured between a self-destructive underclass, a squeezed public sector and a despised metropolitan elite.
Untitled
Untitled

The thing that struck me about the hustings were not the words but the visual design. This wasn’t the socialist red that we saw from Kinnock onwards, but a dirty pink.
Untitled
There was a union jack at the back that would have made more sense at a Conservative party conference. The politics of Labour are confused, but not half as confused as current visual presentation.

The Brexit post part two: a guide to what on earth is Brexit for people outside the UK?

I was prompted to write this post based on the many questions from friends living outside the UK – who are trying to make sense of what is going on.

Brexit is a portmanteau of ‘Britain’ and ‘exit’. The exit being from the European Union. In 2013, David Cameron announced that a conservative government would hold an in-out referendum. The referendum would take place before 2017.

Cameron is campaigning to stay in why did he call for a referendum?

David Cameron had two main reasons for calling the referendum.

The Conservative party has members in both camps. This has been a fault line in the party for a long while. The reasons for this split in the party boils down to two factors.

In order for the EU to be more powerful on the world stage, it has to speak with one voice. The process of consensus that it uses to get there means the UK is part of the consensus not a lone actor on many issues. This has an impact on how sovereignty is perceived. The full name of the Conservative party is actually the Conservative and Unionist party. It has members who view that sovereignty argument is an attack on the sanctity of the state. The second argument is having a completely deregulated market will benefit business. This would annul workers rights and make government much smaller. Taxes would be lower since the government would be responsible for much less activity.

The economic argument for remaining in the EU is that it provides access to an internal market. This has some ancillary benefits: as an English speaking country the UK is ideal for international investment. The EU provides a wider pool of workers to draw on. In knowledge economy work this is important. It is easier to do business across Europe with common laws and regulations.

The second reason is that before 2009 if you wanted a right-of-centre party you only had one choice. Under the leadership of Nicholas Farage the UK Independence Party (UKIP) rose. This was down to his personality and right-wing populist policies. On the surface of it the Conservative party had to adapt to the reality of competition.

Calling a referendum at a time of Mr Cameron’s choosing was a way of dealing with the bleed of support to UKIP and the split within his own party. I think it would be fair to speculate that Mr Cameron’s team underestimated the Leave campaign and the sentiment of the general public.

 What are the key issues for the electorate?
The issues break down into what I will term surface issues and shadow issues. The surface issues are those issues that connect to the referendum in a rational, logical way. The shadow issues are issues that aren’t connected to the referendum. It is a bit like having an argument with a loved one, often the subject is an excuse to raise everything else that has led to this moment. Essentially the surface issues are rational, the shadow issues are emotive in nature.

The Surface issues

For leaving:

  • The UK would get to save the money that it currently contributes to the EU. The numbers talked about this vary. Much of the money that is sent to the EU is spent in the UK. Many leave campaigners argue that this notional pot of money would be better spent on the NHS. There is no guarantee that this would take place and it assumes that the economy performs at least as well in the future.
  • The UK is the fifth biggest economy in the world, people would still want to trade with the country. The UK could do a better job negotiating trade unencumbered by the EU. At the present time, the UK is part of a trading bloc of 26 countries. The EU is the world’s largest trading bloc and that gives it a helpful position in negotiations. The other EU states remain the UK’s largest trading partner. For political and business reasons the UK may not get particularly good trading terms out of the EU, beyond what it already has. It is speculative and we just don’t know.
  • The UK can take back control of its borders to limit immigration. There is some evidence to suggest that uncontrolled migration from the European Union affected wages. This impact was biggest on wages in unskilled or semi-skilled work. Whilst this impact is considered to be small, it affects voters living hand to mouth. They will perceive this impact as big. The government data on net EU migration has contrasting sets of figures which can give rise to concerns of under-accounting or a cover-up depending on your paranoia level.
  • Britain can take back control of its laws, cut red tape and become more competitive. This is largely conjecture. Once the vote goes through Britain’s position won’t change until it negotiates its exit from the EU. It’s not like dropping your subscription to Netflix. Future legislation would depend on the kind of trade deals that Britain negotiates. Depending who you believe, a reduction in EU legislation would stop further erosion of workers rights or remove restrictive workers rights from businesses.

For staying:

  • Better the devil you know. At the present time, the UK economy is ok. It is part of the EU trading bloc. Leaving the EU brings with it uncertainty. How will the country trade? Will the UK have free access to the markets of its largest trading partners? How will this affect UK ex-pats currently living in other EU countries like pensioners in Spain? There would be uncertainty whilst the UK negotiates trading agreements around the world. The government hasn’t outlined a clear plan B for life after Brexit.
  • UK residents also have rights to freedom of movement in the EU. If you have your passport, a British citizen can go to work freely in any EU country. For young people and professionals, that is an attractive proposition. Leave campaigners would argue that Norway has managed to negotiate similar freedoms for its citizens and isn’t an EU member.
  • The impact of the UK leaving the EU is likely to be felt beyond the UK. This is based on conjecture, but a Brexit vote may trigger similar votes elsewhere in the EU. The EU has been something that has bound European countries together. Prior to the EU, mainland Europe was responsible for two world wars. Since all economies have a high degree of interconnection, the effects will reverberate around Europe and the UK for a long time. A leave campaign response would be to think about Britain first and focus on higher growth non-EU markets.
  • The UK outside the EU is likely to have a negative economic impact on the country. Economic predictions aren’t certain to happen but make sobering reading. The following international organisations think that it will be bad for Britain including: OECD, the US government, IMF, The World Bank and the Chinese government. This is probably the area that the leave campaigner have been least effective in countering.
  • British consumers will lose out from participation in the EU. A wide range of benefits such as anti-terrorism security co-operation, having their holiday mobile phone bill reduced through EU regulation or being able to study abroad. However, these issues won’t matter to many of the poorest voters who are behind the leave campaign.
  • A vote for Brexit may increase pressures for a break-up of the United Kingdom. A Scottish referendum on independence was recently defeated, but Brexit would re-open the debate in a pro-Europe Scotland. Northern Ireland currently benefits from the EU, Brexit could ramp up simmering tensions and possible bring a return to The Troubles. The Good Friday agreement currently revolves around an open border and North-South economic codependency. Leaving the EU would break this and require a more heavily regulated border to keep out immigrants and smuggling.  A leave campaigner would argue that this is speculation and nothing more.

The Shadow Issues: a working class insurrection through the ballot box?

Modern Britain as an economic power house has left behind wide swathes of the country outside London and the Southeast of England. These left-behind people are the engine driving the vote to leave.

The UK was the industrial beating heart of the world in 19th century and it began a long slow decline due to a number of factors:

  • Much of the manufacturing was in relatively low value products
  • Much of the manufacturing base didn’t have a hard-to-replicate core competence. By contrast German industry is built around high value specialisation and niches
  • Favourable trading environments in former colonies dried up
  • Globalisation brought more competitors to the table. Though many of those competitors like Toyota and Nissan then went on to build factories in the UK
  • Structural issues: a national banking and business finance system based on short-termism rather than the regional banking system with a longer term focus that drove German competitiveness. An adversarial worker – management relationship rather than the German worker-management councils
  • A short term attitude to the dividend of North Sea oil (by comparison, the Norwegian government have invested part of this money for the future)
  • A decision by the government to ‘bet the farm’ on financial services in the 1980s
  • A succession of debt fuelled consumer boom and bust cycles
  • Poor decisions made on worker training. UK apprenticeship schemes have lagged the quality of similar schemes in Germany and other European countries
  • Unfettered worker migration from Eastern Europe, which the Labour party has admitted was a mistake

This has left Britain in a curious state:

  • For a country with a famous education system, you have unskilled workers who need to be supplemented by better skilled migrants
  • Their wages are stagnant or may have dropped in real terms due to increased job competition due to short-term or temporary migrant workers
  • A large amount of working poor who have an uncertain future
  • Large of consumer debt, often tied up in home ownership and distorted prices for rental and home purchase. When you can barely make the rent, an economic depression and housing crash looks quite attractive
  • Social mobility is in decline for many
  • University education is no longer a guaranteed entry ticket into the middle class – but it now comes with a vast amount of consumer debt

The elephant in the room for Brexit is the rise of the poorest people in society as an important voter bloc. The UK political system is comprised of major parties who have not reflected the views of poorer people for the past 30 years. You have generations of frustrated angry people and the Brexit referendum gives them an outlet. Many of them know that life will not improve; but it gives them the opportunity to screw the people who haven’t listened over the decades.

Their concern and anger is not new but has lacked focus. Prior to Brexit, it drew some of these people to the likes of the English Defence League and Britain First – alongside the usual collection of people with racially motivated agendas. The UK Independence Party tapped into that zeitgeist and the referendum has brought it to the fore.
Both the main parties have been ill-equipped to deal with it. Immigration is a loaded term as it has been a historic touchstone for racial hatred and intolerance. My Dad faced the classic attitude of landlords with signs saying ‘No blacks, no Irish, no dogs‘.

The impact isn’t only economic, older residents are seeing their neighbourhoods change beyond their comprehension.

Voter concern about immigration is not bounded by race, creed or colour in the UK – which moves it away from being ‘politically incorrect’ to a subject of legitimate debate.

In some respects, it is easy to understand why immigration was such a difficult issue for politicians. Enoch Powell was famous for a speech given in Birmingham in 1968 regarding immigration from Commonwealth countries. Powell’s speech touched on immigration issues that many would recognise now: strain on resources, the degree of change in neighbourhoods and society, issues with societal integration. His speech was also tied to anti-discrimation laws. In a country that had only recently recovered from the second world war, Powell objected to a law advocated by writers from newspapers which had been soft on the rise of Hitler, yet now wanted to impinge on the freedoms of the native British. He quoted from the latin epic poem Aeneid as a graphic way of illustrating his concern about possible conflict.

Like the Roman, I seem to see “the River Tiber foaming with much blood”.

This was allusion to his own foreboding about the future of Britain, partly driven by the riots that had racked US cities including in the 1960s including Watts (Los Angeles), Hough (Cleveland), Detroit, Chicago, Washington DC and Baltimore.

From then on Powell was forever linked to his ‘river of blood’ speech. He lost his seat in Edward Heath’s shadow cabinet and his speech was roundly criticised as racist. Powell did seem to have his finger on the pulse of voter sentiment at the time. Just two weeks after the speech The Gallup Organisation released poll results showing 74% of respondents agreed with Powell’s speech versus 15% who disagreed. Powell was the unacceptable face of right wing populism.

It was only with the rise of UKIP in 2009 that immigration was put on the ‘serious’ political agenda of the mainland UK again.

The main political party members campaigning of remain don’t have easy answers for the intractable problems facing these people. Trying to control immigration is only a small part of any realistic solution. Back in 1981, members of Margaret Thatcher’s government talked about the difficulty in dealing with the economic issues:

“I fear that Merseyside is going to be much the hardest nut to crack,” he cautioned. “We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.

“It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

The referendum has highlighted the distance between working class people and the Labour Party. This is especially striking; working class people are Labour’s traditional natural constituency.

Will Britain Leave The EU?

I don’t know, but at the time of writing the FT’s poll of polls gives the leave camp a 4% lead over remain, with just 10% of respondents undecided. If the polling data reflects voter turnout accurately then Brexit is likely.  We don’t know what the voter turnout will be, it could be affected by a number of factors:

  • Wet weather adversely affects voter turnout
  • Young people, who are generally more favourable towards remaining in the EU; but tend to do a worse job at getting along to the polling station. This referendum may change that dynamic
  • People in lower socio-economic groups tend to have lower voter turnout
  • Older people tend to be more diligent. For senior citizens, if either side of the debate has a better grassroots machine for giving their supporters to the polling booth that could make a difference

Despite much of the fuss about getting eligible ex-pats to vote, they are likely to consist of only 1% of the electorate.

The Euro 2016 football tournament has no matches on June 23 – a major game would have adversely affected voter turnout.

More information
UK government documents on Brexit
UK Independence Party – Wikipedia
Conservative Party – Wikipedia
The knowledge economy is a myth. We don’t need more universities to feed it | The Guardian
Britain is in the midst of a working-class revolt | The Guardian
Working-class Britons feel Brexity and betrayed – Labour must win them over | The Guardian
EU position in world trade | European Commission
The Great British trade-off The impact of leaving the EU on the UK’s trade and investment | The Campaign for European Reform – PDF
The impact of immigration on occupational wages: evidence from Britain | Bank of England – PDF
EU migration — the effects on UK jobs and wages | FT – Paywall
The Economic Consequences of Brexit: A Taxing Decision – OECD
Europe and Central Asia: Growth Struggles in the West, Volatility Increases in the East – The World Bank
Remarks by the President Obama and Prime Minister Cameron in Joint Press Conference | White House
Uncertainty Clouds the United Kingdom’s Economic Prospects | IMF
China: Brexit Threatens to Tip Scale in Favor of U.S. | Money Morning
The Brexit Index: a who’s who of Remain and Leave supporters | Populous
1981 files: Lord Howe rejects ‘inconsiderate’ comments on decline of Liverpool | Daily Telegraph
Analysis: the impact of turnout on the EU Referendum | YouGov
FT – Poll of Polls on Brexit

Books
Heffer, Simon (1999). Like the Roman: The Life of Enoch Powell. London

The Brexit post (part 1)

Generally I find politics a bit too grubby and dirty for this blog and have only touched it when I absolutely, positively didn’t have a choice.

On June 23, 2016 the UK goes to the polls to vote on whether the country should stay in or leave the European Union.

Over the next few days I will be writing two posts (this is the first one). The first of which is about how it has all been presented. The second post will be a guide for my non-UK based friends on what the hell it all means.

Political marketing generally isn’t the most amazing work, though there have been iconic campaigns. Given the momentous decision ahead of voters you would think that there would be a creative advertising campaign.

The US has led the way in iconic political campaigns. My favourites being the ‘Daisy’ ad used by Lyndon B. Johnson against Barry Goldwater.

Ronald Reagan’s ‘It’s morning in America again’ which is curiously soothing yet exceptionally emotive

Barack Obama’s simple messages of ‘Hope’, ‘Change You Can Believe In’ and ‘Yes We Can’ together with a focus on repetition and reach brought out the vote in his favour.

The UK has come up with good campaigns too; the Saatchi brothers ‘Britain Isn’t Working’ that helped get Margaret Thatcher the first time around. Ironically the poster doesn’t contain real unemployed people, but 20 Conservative party members shot over and over again to create the ‘conga line’.
Labour isn't working
It is such an iconic poster that the Labour party still has to jump over the hurdle of proving it wrong 30 years after its publication.

By comparison Vote In’s adverts lack… creativity and any sort of emotion to pull the audience in. It is like they are selling machine parts to procurement professionals, not a life-changing decision.

Ryanair’s campaign discounted flights for expats to come back to the UK and vote to remain has more engaging creative. WTF.
ryanair

Vote Leave isn’t much better. Let’s start off with their domain strategy ‘voteleavetakecontrol.org’ – Google’s Adwords team must have been rubbing their hands with joy. For a campaign the ideal URL would have been voteleave.co.uk (which is a rick roll link) or brexit.com. According to redirect on brexit.com

www.Brexit.com & www.Brexit.co.uk were offered to the various national Out campaign groups for no charge.
After no contact was offered in response it is now up for sale.
£3500

School boy error. If you look at their content, they have managed to latch on to emotive themes, but the production values of the material look as it has been done by Dave in Doncaster who does wedding videos on the weekend.

And as we have less than a week to go to the polls the quality of the marketing isn’t likely to get any better.
Around London
In fact, the best piece of advertising for either side that I have seen was in Whitechapel. It is simple, snappy, emotive and likely done by an art student given the lack of declaration of campaign affiliation (i.e. a call to action to visit strongerin.co.uk or a claim that it was done on behalf of ‘Stronger In’ or ‘The In Campaign Limited’).

One last thought to ponder in this post

WPP in particular has a reputation for hiring marketing talent from political campaigns, and these people are sold on to clients as fresh thinkers and doers for their brands. Positive examples of this would be Obama campaign veterans Thomas Gensemer and Amy Gershkoff, or my old colleague Pat Ford who worked on Ronald Reagan’s campaign.

There will be marketers getting jobs with serious salaries on the back of this work and the designer of ‘Brits Don’t Quit’ will be working in an intern farm somewhere if they’re lucky. Life just isn’t fair.

More Information
Campaign on Labour Isn’t Working.
Ryanair’s EU referendum ad investigated by police | The Guardian – it might be illegal, but at least it has a pulse.
Thomas Gensemer LinkedIn profile
Amy Gershkoff LinkedIn profile
Patrick Ford LinkedIn profile

Oprah time: Velvet by Brubaker & Breitweiser

In a world of Marvel-dominated culture, it is hard to imagine more realistic material. Ed Brubaker got the freedom to publish Velvet after several years at DC, Vertigo and Marvel.

Velvet is a welcome antidote to the superhero genre of graphic novels. Instead, you get a cold war era spy drama with modern storytelling. Velvet tells the story of a middle-aged Anne Bancroft-like secretary and one-time agent. The story gets going when she is set up for murder by persons unknown.

In this respect, it outlines the kind of spy plot that would be familiar to readers of Len Deighton or Alistair Maclean. Brubaker’s choice of the early 1970s goes back to a pre-cellphone and computer age. This provides him with a broader canvas to work with.

The story feels modern in its non-linear narrative that moves back and forth between 1956 and 1973. The story zips through Europe across both sides of the Iron Curtain as Velvet tries to find who set her up. The comic features highly kinetic action reminiscent of Matt Damon-era Jason Bourne.

The first two volumes of Velvet are available here and here. Volume three is due out in September.

Out and about: Granny’s Got Talent | 헬머니

The Korean Cultural Centre has a fortnightly screening of films. The latest one that I went to was Granny’s Got Talent or 헬머니 (pronounced Helmeoni – a literal translation would be Hell Granny).

The premise is built around an old woman who is released from jail. She lost contact with her eldest son and tries to build that connection whilst living with her youngest son. The eldest son is a salary man with an over-bearing set of rich in-laws. The youngest son an inveterate gambler. To bail the youngest son out of trouble she participates in a Korean reality TV show based around cursing and chaos ensues. Veteran Korean actress carries off the role of Hell Granny with aplomb. I laughed so hard at some points I ended up crying.

The raucous bawdy humour works despite subtitles and has some amazing comedic set-pieces. But this rudeness is only the top layer in the story, where the viewer gets a glimpse at the hard life a strong woman had to live in a fast-developing South Korea.

The film works on a number of levels touching a number of distinctly  Korean themes including the obsession with hierarchy, its turbulent political past, the corrupt aspects of chaebols and the love of family (no matter how dysfunctional).

More Information
Movie page on Daum in Korean

Quick notes from Hacks and Hackers London

I went to the Hacks and Hackers presentations this evening host at the Institute of Directors and here is a summary of the notes that I made.

Simon Rogers is ex-Guardian and Twitter. He talked about how Google uses Google Trends, combining it with third party data such as information from the likes of Associated Press. They build some nice visualisations around them. Most of the data that they used was basically the same data that consumers had access to through the Google Trends tool. Google seem to deliberately restrained in terms of the data that they could deploy on this, but they did work on tightening up and redefining regions from the way their internal data held it to the way it related to the real world.

There was some nice work done that looked at associated search terms that came up by people who searched for US presidential candidate names. It reminded me of the work that Hunch did around consumer behaviour patterns and likely political beliefs – but less sophisticated. (Hunch was bought by eBay and eventually shut down).

Kate Day talked about the launch of US site Politico in Europe. The business had a split business model with a B2B subscription offering that provided European Parliament intelligence. and a more conventional consumer advertising audience model which targeted people who were professionally interested in European parliamentary politics.

From an editorial point of view stories which drove big peaks in traffic often brought in the wrong kind of audience who either wouldn’t be likely to return, or ‘get’ the content on offer.

Targeting on social media was purely done through careful selection of the copywriting, which requires professional knowledge and a desire to self select as a ‘policy wonk’ rather than using Facebook or Twitter’s ad targeting mechanisms. In common with other subject areas regular coverage of a beat area matters to drive continued engagement. Politico has managed to get UK press scoops by showing up at all the press briefings in Brussels rather than following the British eurocrat events – this probably says a lot about the small size of teams that other national news outlets have operating there.

People that have made my year

2015 has been a year of constant change winning the global Huawei smartphone business, launching New Balance Football and making margarine more digital:

My good friend and go to creative Stephen Holmes at Bloodybigspider whose office in Whitechapel I had access to during the autumn

Ian Wood with whom I shared coffee and ideas  throughout the year

The team at Lowe Profero who have helped me get to grips with a number of projects that I picked up in mid-flight

Haruka Ikezawa who was my desk mate and creative sounding board at Racepoint

My good friend Cecily Liu at China Daily, who is always a great source of intellectual discussion

Luke Zak who drove a lot of the work on New Balance Football through his love of the beautiful game

Vicky Neill who shared many of the highs and lows of pitching and driving campaigns for Huawei

The limits of digital

A few articles that I read over the past few days highlighted the edges of digital. The FT published an analysis on the modern problems that digital has wrought on the advertising industry.

Jeff Goodby, chairman of Goodby, Silverstein & Partners – a successful longtime American advertising agency said:

In the past, he said, the only true measure of success was whether the public knew and cared about your work. “You could get into a cab and find out, in a mile or two, whether you mattered in life, just by asking the driver.” Now, “No one knows what we do any more.”

In essence advertising campaigns had lost talkability, positive brand associations and long term memorability – the kind of things that you would think of being important in terms of marketing’s role in brand building.

Brands, particularly emerging brands like designers have it as bad as advertising agencies, here’s fashion site Man Repeller on the challenges of building a brand:

When I first started working in fashion retail, coming from a fine arts background, I thought it would be completely different. Working with the clothes but also seeing the way it had to recycle every six months got me thinking about the branding that gets pushed upon designers. I think it happens in all creative fields because of social media. I see it with a lot of my peers. We see the same obsession with youth — young painters — in the art world that you have in fashion with young designers, the same pressure for a cohesive vision. At 25? Nobody knows what they’re doing at 25. And that’s totally fine. You’re still finding yourself. And there has to be more room to find yourself when you’re young as opposed to this pressure to emerge as a fully formed Greek myth coming out with her uncracked egg, or whatever.

Which impacts the kind of businesses likely to grow in the future. They are likely to be ‘culturally stunted’.

The noisy environment of social has meant that brands are also distorting themselves to get cut through, Vice magazine covered what can only be described as sociopathic brand personalities of independent coffee shop chains in London.

Or Instagram baiting street side billboards like a pub landlord who misquotes Enoch Powell and thinks that the National Front aren’t serious on race issues

More information
How the Mad Men lost the plot | FT
MR Round Table: The Burnout Generation – Man Repeller
London Is Tearing Itself Apart Because of Coffee Shop Sidewalk Signs | VICE

Out and about: The Modern Pantry

Thanks to the lovely people at Sprinklr I got to meet Jay Baer and hang out with some of my digital brethren here in london.

The venue was The Modern Pantry which is just around the corner from The Zetter. The food was a mix of European cuisine and both meat lovers and vegetarians are catered for. The dishes all seemed to use seasonal produce so I enjoyed a pumpkin based main course.

The venue is sufficiently small that the noise never gets too loud making it ideal for a business lunch. The ambience is not too formal and stuffy in terms of the decor with what I guess might be called ‘farmhouse’ style furniture with traditional wooden tables that had been given a ‘washed’ type paint finish. The food was really good. They open for breakfast, lunch and dinner. If you are looking for a business lunch location in Clerkenwell, you could do a lot worse than The Modern Pantry.

The Modern Pantry
47-48 St John’s Square,
Clerkenwell,
London
EC1V 4JJ
020 7553 9210