Below is a transcript from a long interview I had with the NZZ where we discussed many dimensions of Brexit, the past, present and future. A vastly reduced segment made it into the Swiss newspaper NZZ.
[NZZ David Signer:]
I’m going to Grimsby next week. The occasion is ten years of Brexit. As you know, I am meeting a high-ranking person from the Brexiteers and now from Reform UK. This is an interesting place, with the economic transformation and people’s frustration with how this is unfolding. I would like to talk a little bit about that, also in general now what Brexit has meant for the UK, negative or positive. As far as I know, you have done pretty precise research there.
[Thiemo Fetzer:]
The EU referendum vote in 2016 highlighted that the UK has an uneven spatial economy. It is not shaped by the political institutions we have in Europe. In Germany, gleichwertige Lebensverhältnisse [equal living conditions] is a constitutional principle, and it is also a founding pillar of European cohesion policy. The British system has not produced similar effects or results. In the UK you have entrenched spatial inequalities between regions, and the Brexit referendum has highlighted the extent of deprivation and spatial asymmetries that exist in the UK with communities that have effectively had a poorly managed industrial transformation. Unlike what we try to do in Germany, where we do the exit from coal, and part of the negotiated exit from coal mining involves a plan to reshape the economies in the regions that are now reliant on coal mining. In the UK and the US, the story is very similar.
These transition paths are not politically shaped or created. In the UK, you have a lot of communities who would have seen an economic shock historically that could be coming from trade integration or openness to trade. It could be coming from, even longer ago, mining towns, coal mining towns in the 80s, which has nothing to do with China, but a transition of energy production away from coal towards natural gas for electricity creation, reduced the demand for coal in the UK. That affected the coal mining regions in the UK more than elsewhere. In the UK, that transformation process of local economies is not politically shaped. It’s left for the free market to solve and the free market just doesn’t show compassion to these places. Then you have spatial sorting whereby young people who grow up with aspirations, who want to achieve something, and you have a local labor market that doesn’t absorb them.
The young people leave to the big cities or the bigger cities to look for economic opportunities that don’t exist locally. You end up with this very unhealthy dynamic of deprivation and communities falling into disrepair, economies becoming non-viable and becoming transfer dependent. The UK’s economic geography is very much shaped by that. You can’t really pinpoint it down to anyone’s specific shock. Was it the exit from coal? Was it the China shock, as some people claim? In Grimsby it was mostly the fishing industry. The fishing industry also shows why Brexit is so damaging. The biggest market for British caught fish is the European market. A lot of the fishing towns have not done particularly well because they’ve lost their market access to their output. The fishing towns were instrumentalized in the political campaign in 2016.
We had Nigel Farage getting a few boats to ship up the Thames, to drum up some noise, to advocate on behalf of the fishermen. Looking at how the post-Brexit settlement has affected the fishing communities, it was very bad for the fishing communities because they’ve lost access to the most important market. It’s just not a thought-through policy. The fish that the British people like to eat is not the fish that the British fishermen catch. They were talking a lot about fishing quotas: Europe, Britain, Iceland.
That is a conversation that they’re now still doing even after Brexit. That has nothing to do, it’s about the sustainable management of a natural resource that needs to be managed, and that needs to be negotiated. If anything, one could say that maybe the extent to which the UK could negotiate for bigger share of the quotas relative to when they’re negotiating from within the EU bloc that this might have changed the relative bargaining power, but de facto it hasn’t because the loss of market access to the output is much bigger than any marginal gains in the quotas that they could realize. At the same time, the loss of the market access for their exporters, because fish is not something that typically gets super long-distance shipped, especially if it’s fresh fish.
The type of fish British fishermen catch and sell to the European market is not salmon. It’s more varied fish that British consumers like fish and chips, but it’s not the fish-and-chips fish that the fishermen catch here. That negative fallout has now resulted in a further decline in the British fishing fleet. That economic damage is why this is a case of turkeys voting for Christmas. We have had fishermen being instrumentalized politically to vote for an outcome, to campaign for an outcome that had strong moral and visual appeal. It was striking having Nigel Farage mobilize this.
When push comes to shove, the situation is even worse. Anybody who was sane and credible had predicted that outcome. That’s why it’s so perverse because we keep seeing this repeated around populism. Vocal actors, some possibly backed by money from outside the domestic economy—as in the current discussion around Nigel Farage, the five or nine million, and Reform receiving overseas donations—shape political outcomes by instrumentalizing people, and then the people are pushed in front of the truck, or left to be forgotten. Overall, it’s not like the fishermen were a big political constituency. They don’t have a big political lobby before Brexit. They also don’t have a big political lobby after Brexit, but they were a perfect campaign base to be exploited in an environment where the media loves these weird stories of here’s a bunch of fishermen, shipping up the Thames.
[NZZ David Signer:]
It’s just good marketing.
[Thiemo Fetzer:]
That is good political marketing. That’s what we’ve seen around the 2016 referendum.
[NZZ David Signer:]
What I hear sometimes is: the result of Brexit is negative, but not as negative as some people said. Would you agree, or what is the general view?
[Thiemo Fetzer:]
If we look at it, that’s the challenge. What I’m working on in my research is trying to construct the counterfactual UK. What the UK would have looked like had it not been for Brexit. If we do that, the numbers align very well with the predictions. Even with a conservative method, the UK economy is estimated to be between four to eight percent smaller than it would have been had it not been for Brexit. That’s the numbers that were predicted. Even the data, I’m working on this by looking at ex ante predictions from 2016. It’s really hard to measure which region was affected and by how much.
Part of the reason we have an economy is that, when we trade freely within it, we do not keep a paper trail of every transaction. Measurement is really hard. But even when we do that with data from prior to the EU referendum that was trying to see which regions will be more affected by Brexit, which regions will be less affected by Brexit, we see that things align fairly well on the order of the ranking of places that have performed much worse. We see that the experts were right on the assessment. That doesn’t necessarily mean that the political narrative that you can create from the numbers resonates with people.
The evidence suggests that Brexit has created a levelling up by levelling down. On average, the costs of Brexit have been harder on some communities where the support for leave was structurally lower relative to the places that had already been in a quite poor economic condition. Let me rephrase this. There’s leveling up by leveling down. The economy as a whole gets poorer. But the places that were already suffering are not suffering much more, they’re suffering more, but the places that were doing quite well, they are suffering much more. In relative terms, the deprived places, the places like Grimsby, people there feel relatively better off because they’re worse off, but not as much worse off as the places that were better off to begin with. It’s a story of regional conflict. London was doing really well, and has been doing economically really well for a long time.
A lot of the narratives that the Brexiteers created was, well, spatially, a vote for Brexit is a vote against the Westminster elite, against the London elite. It’s a vote for the average person in the countryside, in the small towns. In that sense, yes, you could turn that into saying it’s a success story because the economy is smaller, but it’s hurting the communities that voted most strongly for Brexit, less than the communities who strongly supported Remain. So in relative terms, people might feel like they’ve won. But this is the consequence of living in a world where you don’t think of the size of the pie. But you only think of the size of your slice. If you have a bigger slice of a smaller cake, you might feel better off. It’s still that as a society, collectively, you’re poor. That’s the signature move of populist policy.
Populist policymaking creates a world of a perceived bigger slice because you feel like you have your voice being heard. You feel like you have representation that you otherwise would not have. While the cake is smaller. Then people can still feel better off. In fact, a lot of the distributional conflict is still there. It’s just being hidden. That’s creating, making it nearly impossible for policymakers to find win-wins in a political climate where it’s possible for politicians to sell products that effectively shrink the size of the pie. but create the perception that the pie is bigger for some relative to others, it’s nearly impossible for honest politicians to try to shape policies that are aimed at increasing the size of the pie.
[NZZ David Signer:]
That’s the funny thing with a place like Grimsby. They are not better off now, but still they are voting massively for Reform UK.
[Thiemo Fetzer:]
That is the perverse thing about populism in general. You have people voting like turkeys voting for Christmas; this is the incarnation of it. Around all of the Brexit discussion and so on, I think there’s some upsides. There’s some positive things that are happening that I think can help heal societies because, spatial asymmetries are a feature that is growing everywhere. When in 2016 we did the first study on what explains populist voting, we’ve shown this, though it is difficult to do. What we’ve done is collected a lot of data on the UK and we’ve tried to explain, create an empirical representation of the vote for Leave. What variables, what features of a local economy explain the vote for Leave? Then, we can statistically see which is a good model, which is a not so good model.
When we take the best model learned only on British data and apply it to French data, the model fit can be poor or very good. If we take the UK model and apply it to French data, the UK model applied on French data does a very good job at explaining French populism. This highlights that there’s a common phenomenon of populism, which is that it motivates and mobilizes voters in these left-behind communities. If you look at what these left-behind communities are, it’s typically places that have seen selective outmigration of young people, that have had declining industrial base, few jobs, nothing to replace these jobs with, relatively worsening public infrastructure, if you consolidate the population, ageing continent, it makes sense to move the population closer together because it’s cheaper to provide care.
So it makes sense that these left-behind communities exist, but in political systems like the US, Germany or elsewhere, where land has political representation because of the dual-chamber system. Physical land has more political representation than potential votes. It obviously means that those voices have a lot of potential narrative weight into societies. Anyways, so what we see is that there is some, that this is a common phenomenon, that the UK phenomenon, the US phenomenon, the European phenomenon is very much the same. The question is, how do we answer and tackle this? Because now the populist answers are the answers that satisfy mostly the people who are ultimately benefiting in the long run for the big cities, overall. Because Singapore on Thames, which is one of the slogans, a deregulated, full-on private economy, is very much benefiting the financial services sector and tech sector.
[NZZ David Signer:]
But the people in the financial services sector and tech sector, they’re not going to move to Grimsby. They’re not going to take their income and their tax base there. That’s not going to happen.
[Thiemo Fetzer:]
How can we think about solutions to it? I think the pandemic has shown us a light of what some of these solutions can look like. Remote working means that the benefits from agglomeration can spread. Cities are awesome.
People want to live in cities. That’s why we have this out migration of young, smart, talented people to the cities. It’s a big problem for the rural side where countries potentially lose their ability even to grow their own food. Because people don’t see value in becoming a farmer or a skilled tradesperson and stuff. That’s fundamentally what’s wrong with our current economic relationship. With the pandemic and remote working, people all of a sudden realize that if they possibly work less, because they don’t have to spend hours and hours commuting to work anymore, they can take that work, picking up hobbies, becoming more invested in the local community, or potentially moving somewhere further apart if they only need to come into work for a couple hours a week. So it can benefit, it can spread the benefits of agglomeration with people on high salaries moving to more remote areas and thereby help revive local economies.
I see that working from home is one of the fixes that through which populism can be tackled because it leads to a change in the composition of the population. This has been happening in the UK in particular, we see internal migration picking up a lot. The other bit that can be a fix, and I think in the medium to long term will be a fix, is that AI will lead to a status reset.
It will lead to a potential recalibration of human flourishing away from high status jobs like legal accounting all of these things because these jobs are more at risk than if you’re a plumber or a skilled tradesperson which in relative terms could potentially reduce the flow of out migration from the smaller towns into the big cities because the big cities might not offer the same economic opportunities anymore if the accountancy jobs are now to be had locally as well, if you could remote work, or if there simply are not as many jobs in these sectors anymore left, because AI will have automated. It could lead to a revaluation of the skilled trades, which is something that most of Western European countries have structural and chronic shortages in. That’s why we need to resort to immigration. Then immigration undermines the possibility of importing skilled trades, undermines the incentives of maintaining institutions.
That maintain the vocational training, which is again something that in Germany and Switzerland, thankfully, we’ve protected our vocational training systems. They are the envy of many nations that we have these deep-rooted institutions that are quite protective of vocational skills that in the UK, they’ve just turned to the immigrants. Then if it’s a cost of business of training a plumber and the plumber can just run away, do their job elsewhere, it doesn’t have this positive relationship between the master and the apprentice. That’s why for the UK, given the culture, of capitalism in the UK, but also in the US, immigration might have had more of a negative consequence on the ability of the UK to maintain its vocational training system. They’ve been retrying for the past 10 years, for the past 12 years, to rebuild an apprenticeship system through an apprenticeship levy.
I don’t know if you’re familiar with this, but they’ve been trying to rebuild the idea that societies that lose, that forget how to make stuff, that forget how to maintain infrastructure, become non-resilient societies. So I see that AI in conjunction with demographic change, in conjunction with working from home, can be a way of helping heal the roots of populism by breathing life back into these aging, less connected communities. It will definitely not reach all of them, because some of them are simply too remote. They’re too far away from the connective tissue of the big cities, but it can help definitely stem the tide of populism.
[NZZ David Signer:]
Let’s try to apply what you just said to a place like Grimsby. I don’t think there are a lot of remote workers there, IT guys working for the city of London.
[Thiemo Fetzer:]
For example, what the UK has been trying to do ever since the vote for Brexit is to reallocate, to do what the Europeans have been doing all along. To move offices into different parts of the countryside. The Bank of England now has a Leeds office and is trying to relocate staff there. I think the HMRC, the tax authorities, they’ve opened a campus in Darlington. Darlington is very much a Brexiteer town. They’ve been using a tool of industrial policy to help even out spatial inequalities that in Europe we’ve been doing for decades and decades. Decentralization. Decentralization, which in the UK they’ve had an excessive form of centralization. Which created a disconnect, which, yes, there is a lot of waste. There might be waste in public spending. One way of trying to retain that is to try to centralize it.
Then at the same time, there’s a mismatch of local preferences and local spending allocation. That was post-global-financial-crisis austerity. They effectively cut local government budgets by 50 to 60 percent. While the narrative of Brexit was one on narratives such as We need to fund the NHS. Public goods are deteriorating and we’ve got these bloody immigrants who are like. creating a queue in the healthcare system, which is completely wrong. Because the average immigrant who comes to the UK is not working, but they’re on average economically participating. That’s not necessarily true for all immigrants from all places. Pakistan, there’s a lot of issues because they bring their whole families and so on, and then they are not on our working norms where both husband and wife are participating economically. There is some truth in these narratives, but it’s still true that the average immigrant is not causing an excess amount for public goods.
[NZZ David Signer:]
Do you have any idea about immigration in Grimsby?
[Thiemo Fetzer:]
We can look at this. Grimsby, sorry, maybe let’s do this afterwards. I can send you some data because this is something I’ve been meaning to show you. This is working on this, which is measuring how different parts of the UK have evolved. In response to Brexit. How the economies have evolved, how they would have evolved had it not been for Brexit. This is the case of Darlington, a community I’ve mentioned. If we look at the historic data this is doing it very carefully, there are many ways of constructing such a synthetic Darlington, This is a market, it’s been going like this and it’s been flat since 2016, whereas any other way of drawing, of building that statistical doppelgänger would suggest that Darlington would have done better than it had it remained in the EU.
So it’s a way of measuring the trying to get to the measure of what the economic cost of Brexit is on different communities. This is really difficult for various reasons, but I’ve been doing this now for the fifth year in a row where we’re building these estimates to understand whether Brexit is making things better or making things worse for different communities. Smaller pie, smaller slice or bigger slice of a smaller pie, that’s the narrative. We see that most of these, some communities are doing slightly better, but on average, it’s just a loss. It’s lose-lose.
Immigration post 2020 is a different story. That immigration post 2020 is something that the UK could have also had while being inside the European Union. Because the immigrants who came post 2020 from Nigeria, from the Philippines, from India, they would have always been able to come to the UK with an independent immigration system. The European immigrants who came to the UK, they were not the archetype immigrant who came to the UK, from India before Brexit. The average European was either a university student who then stayed here, just as myself, or they would have been, they’ve moved here because there was a job here opening, they took the family, or they’ve just exercised the freedom of movement. It was not somebody who was eternally and structurally dependent on the welfare state. So that’s why, but, when you now bring in a lot of immigrants, they can also prop up the local economy.
They can create the impression of the numbers looking better than they would have been? That’s now one of the distortions that might be introduced. Yeah, I’ll pull off the numbers. Yeah, most of the UK has seen, the UK has seen a migration wave that’s unprecedented. In the last 30 years following 2020. Part of it was because somebody wanted to create a narrative for Brexit to be a success. Because one way to make the economy look bigger is by creating asset price inflation. One way of creating asset price inflation is having more people compete over less real estate. That’s the way to do it.
I think in a place like Grimsby, you have a lot of jobless people. You have a lot of jobless people. For communities like Grimsby, what the UK has been attempting to do, it’s a form of regional structural policy, I don’t endorse because I think it’s ethically incredibly problematic, is to effectively relocate people who are on benefits. From inexpensive cities to move them to deprived places like Grimsby, which is making matters worse because it’s not necessarily bringing people who you might want to move there. It’s bringing people who might live in Westminster in a council estate where they’re receiving housing benefit like a subsidy to help them pay with rent. It’s people like these who are now being relocated to the smaller towns like Grimsby, like assisted housing. It’s a huge business here because it’s almost risk-free.
I get these investment briefs to invest in assisted housing where people who have disabilities or some other conditions that might render them economically inactive where the state has a statutory duty to provide care or provide for them. The state now has the incentive to move them away from expensive places to poor places. Then in these poor places, there also might not exist houses. You need private investors to build these houses. These private investors are being offered a risk-free return on their capital, where the demand for that real estate is baked in by that you have these vulnerable people for whom the state owes, has a legal obligation to pay for their upkeep. It is a transfer from the rich to the rich via a bunch of poor people who then move to the places like Grimsby that are not particularly nice. I’m not saying nice, but like it’s really, these are under-invested communities.
I’m not sure whether moving more vulnerable people into these communities is a good thing for how these communities will evolve politically. The economic inactivity rate is probably around 30%. 30% of the adult population is not economically active. I will pull out the exact number for you, like I will make sure that I lose the memo saying which are the numbers that I owe you. But yeah, it’s one of those places with a huge economic inactivity rate. If anything, they would have seen a massive influx of domestic migrants, so people from within the UK, and many of them, they would be relocated there on active relocation programs that the Department for Work and Pensions organizes.
[NZZ David Signer:]
That’s interesting.
[Thiemo Fetzer:]
It creates the impression of local economic activity because it leads to more construction, like because they’re building like assisted care homes. Care homes is another big business, building care homes in these deprived coastal towns. Moving, shipping the old people there who might have disabilities. It might be a net gain from a welfare perspective. Still, I don’t think it changes the fundamental psychology of these places and where it’s a psychology of death and decay.
[NZZ David Signer:]
A lot of criminality also.
[Thiemo Fetzer:]
It’s more like petty crime. I don’t think it’s structured crime. It’s not like gang crime, but it’s the type of crime around drug abuse, petty crimes, thefts. And that creates an environment where nobody wants to have the children grow up in. It creates that demand for moving away from a place like Grimsby, even if you have young families there. That is almost like a death spiral that can be created for just to shape the collective psychology of a place. Then the UK, the British system almost relies on there being that spatial gradient. People always, when you look at comedy shows, I’m not sure how deep you are in local culture, but when you look at this, there’s always people saying, ‘oh yeah, I grew up there, a deprived place. But look, now where I am, I’m in Camden, London, everybody cheers.
Like it’s that incarnation of a lack of pride in identity of where people come from, a lack of local attachment, and a feeling of success and accomplishment that is, that is decreasing in the distance to the court of St. James, meaning the closer you move to Westminster or Buckingham Palace, the bigger is your accomplishment in life. That’s really not healthy for a society because it means that the periphery like it creates this almost natural selection of out migration. That’s one thing that I think in Europe we on average manage better because we don’t have one big city around which everything evolves. We have many different decentralized clusters with healthy, almost self-sustaining economic systems. Switzerland is a great example.
Germany is decent in this the East less so than the West because the East much more centralized And much more deindustrialized, because it does not have all of that smaller medium-sized firms But that’s the bit that I think the UK really struggles with
[NZZ David Signer:]
Yeah, but what I don’t understand in Grimsby you have this huge food processing industry. You have other businesses as well like Wind Energy. There must be thousands of jobs. What’s the problem?
[Thiemo Fetzer:]
For the food processing industry, the big challenge is that these are not necessarily the jobs that people would like to do. it’s not, let’s say, a high status job. In the UK, that’s what gets to the comment on what AI will do? I think AI will lead to a revaluation of what is a good job, because a lot of other jobs are now also at risk? So in relative terms, less good jobs might be more desirable. it can change the pecking order of status, which I think is important. But so in the food processing industry, these are not necessarily good jobs. It’s true that a lot of the jobs in the food processing industry, this is where a lot of immigrants from Eastern Europe that came after the EU accession moved in. They moved predominantly agriculture, food processing, food manufacturing, and so on. Because these are hard jobs to do. They’re also not so nice.
If you think meat processing, food processing on average, it’s not as nice a job. So the average British person also doesn’t like doing these jobs. So this is the perversing of these places with food processing industries that oftentimes they struggle with attracting workers. At the same time, you need to keep food prices low because otherwise people are unhappy. So it creates this perverse pressure in the food processing industry towards having casualized labor. Or potentially dependent labor. That’s why you want to bring in immigrants who ideally whose outside option is even worse. The outside option for somebody coming from India or Pakistan is on average even worse than the outside option for somebody who came in from Poland. Because the standards of living are much more different. So in the end, the British immigration system now brings in the workers that they need.
They could have done it even before Brexit, but they’re now potentially bringing in more people who might be willing to work even harder for relatively less. That’s the ethical issue around this. You could arrive at a morally principled argument of saying why immigration is bad from a normative point. That’s the problem with Grimsby, they don’t have the jobs that people like doing. Food processing being one. Construction is another one. Around the wind farms, a lot of the wind farms, it’s my understanding they’re not built onshore, they’re built offshore. The offshore workforce is a very different workforce than onshore workforce. If you have an onshore workforce, you end up having creating value chains around maintenance, around inspections, which for the offshore industry is very different. We could ask ourselves, why does the UK struggle with building onshore wind farms?
To me, I sense a pattern that in the UK, this might be extrapolating a little bit, but now most of the wind farms that are being planted in the UK are on the outer continental shelf, which is part of the royal estate, the crown estate. For every unit of energy that is earned on the crown estate, the crown gets a kickback. Whereas for every unit of electricity that would be generated on a piece of land that’s on the soil in some constituency, that kickback need not exist. So offshore wind economies have very different economies of scale. But the whole beauty of renewables is that it leads to decentralization of value chains.
[NZZ David Signer:]
It leads to resilience.
[Thiemo Fetzer:]
We don’t need, around the nuclear power, you need air defense in the future. Around millions of decentralized power producers, you don’t need to waste money on air defense because you have so much resilience through the decentralization. That’s the one thing where, the US and the UK get this completely wrong. Whereas I think in Europe, we are building on average much more resilience by having that decentralization. I do question at times whether for the offshore, you don’t have that local linkages, because the maintenance workforce can be anywhere, and they move around, and they’re using specialized vessels. But they don’t have like a local site representation. So the spill overs are much smaller into the local economy, much smaller than counterfactually they would be if there was an onshore build out. And we also see that a lot of the populists are very strongly advocating against renewable build out.
Because the whole idea of decentralization means there’s less concentration of power. The less concentration of power and the less potentially control a few isolated individuals could exercise on society. In this country, this extends to, some of the land and gentry that still have a lot of representation. More so than the average person. That it potentially extends to the crown.
[NZZ David Signer:]
What about the level of education in a place like Grimsby? Are there many people who would have the qualifications for higher level jobs?
[Thiemo Fetzer:]
In the UK, the education system is… We talk about like schooling education, we can talk about vocational skills or skills more generally. These are two different things. I think that the British education system produces a huge variance of outcomes, much higher so than the German state education system.
So it is true that in the UK, the education system does not fulfill its function of ensuring a level playing field or a level of base knowledge that is imparted on, the same generation, right, on different generations. That’s partly because there is a much longer culture of private education. Oxford, Cambridge, these are all private institutions; they are not state organizations. Whereas most of the education systems in continental Europe would have a much stronger state pillar. Which means education is seen as part of the social contract, where here it’s a private return. Now if you’re in a community with a bad economic endowment, meaning like you have deindustrialization, you have the economy declining, you will end up structurally having worse schools if school access is a function of whether there is a viable private-school market.
But for a private school, you need to have an economy that has parents that afford a private school. So structurally it is true that these places are not just economically deprived in the current status, but they’re also dynamically economically deprived because they will not nurture the children who could be part of that. So it’s almost like a poverty trap where it’s mutually reinforcing. So that is true. I think on the skilled and vocational training, these would be pathways and avenues for these communities, but for that you need to revalue the return, you need to rethink the returns to education, the returns to skill. Part of that is happening in some way. We’re going to see, and it’s already happening all over the Western world, it’s much worse all over the rest of the global South, is where structural under-employment of young people coming out of the education system.
The education system now masks a labor market that is not able to absorb millions of people who come out of education, with the economy simply not generating the jobs anymore because we don’t need them. With AI, we can replace a lot of entry-level work. A lot of the work that we’re doing, AI is also exposing as being a bit ridiculous. Data entry work, invoices, receipts, all of that. If we’re living in a digitized economy, a lot of these jobs can go. A lot of these jobs are now what young people might buy into because they perceive it has status. Status is something that in the West we program to seek. That is what I think could be, a positive.
In relative terms for communities like Grimsby, because it might mean that the young people who are growing up there, who might otherwise see opportunities only in moving to a big city, that in relative terms, that doesn’t become as attractive anymore. So more people decide to stay and say, I want to make a difference here. How can I make a difference here?
Maybe I see that we don’t have plumbers anymore. it could create a revaluation. Then it’s important that we have a public sector that is complemented and is helping these individuals to then raise oftentimes very modest capital, provide physical premises where they can start like a workshop to become builders, to become creators. I think that’s going to be, if we get to that point, then I think we can heal some of the wounds that a vote like Brexit, Trump in the US, but also growing populism in Europe highlighted. That’s very close to heart, because I grew up in Ulm, in the south of Germany, very affluent. It’s one of the richest parts of Germany. I did my undergrad in Magdeburg, which was, I was valedictorian in my school, one of the best in the in my graduating year in the Baden-Württemberg with the Abitur. I did something crazy. I went to Magdeburg to do my undergrad.
There’s a long story of why. It was for me very inspiring because I wanted to see how it is to live in a different country in my own country. It’s like a mini Europe. You saw the scars of 50 years of communism, 40 years of communism, but also the very brutal deindustrialization that part of Germany experienced, which it needn’t have experienced if only we had managed reunification in a slightly different way, similar to how we manage the integration of new members into the European Union. It’s a gradual convergence process. They’ve got the shock therapy and the shock therapy is making its voice being felt in the voting booth and this year will be brutal in Germany. It’s the legacy of that political decision because we didn’t cultivate the adaptive capability of the East Germany economy.
Politically, there might have been the risk of potentially the Russians rethinking that because subsequently the Soviet Union collapsed and they might have rethought that. The political calculus might have been a different, but I think that a lot of the roots of populism in East Germany has its roots in the shock therapy that was afforded on their economies. Because you can’t create a European identity through brute force. You create a European identity through a path of convergence to a gradual opening up through a broadening of horizons and to deep exchange between the peoples. That’s for me now the most important thing for the UK. I do hope we get to see the UK being back in the European umbrella.
I’m most concerned now about the geopolitical developments that would set the UK potentially making political decisions that might make a reintegration with Europe infeasible through certain choices that they might make in and around the regulation of digital services and digital ID. It could mean the UK set itself on a path that might be incompatible with future reintegration. But most importantly, it’s about keeping the movement of people and young people, bringing them back to life, strengthening the connection with the continent. That is why, the European Commission is so actively in trying to encourage the British to see the long-term value of a youth exchange scheme and making sure that we create these pan-European relationships. The British only realized what they’ve lost with the European Union after they’ve exited it. Most people were not aware of it. Many young people whose future were decided upon did not participate in that referendum.
We saw that, if you look at the data, that turnout among young people in the referendum in bigger cities was much lower. Old people voted for the European fate of the young generation. Yeah, I find that incredibly problematic. Supporting that population exchange, young people, is more important than ever, in particular because in a world of growing global powers, the UK is a little player. Each European nation is a little player. The strength we get is through pooling resources.
[NZZ David Signer:]
I think there would now be a small majority for re-entry,
[Thiemo Fetzer:]
Part of the Brexit issue was also releasing a new paper that was done in 2019 before the Brexit means Brexit vote, the second Johnson, is it the second? It was when Johnson ran on that get Brexit done mantra. The problem is the UK with the EU referendum was confronted with a political instrument that the UK public has no conceptualization over.
It was effectively a proportional-representation instrument. It means vote for something and every vote counts. The British electoral system is a winner-takes-all system at the MP level, at the constituency level, which is fundamentally undemocratic. If you think that there’s such thing as expressive voting? If you think that, a 51 to 49% technically it should lead to the 51% position moving to be closer to the position of the 49% outcome. That might not be what is the political reality in Westminster, because if you have three parties, each of them roughly one third, the electoral outcome effectively becomes a gamble. That’s what the UK has been struggling with, massive political instability.
With a political system where the average person is conditioned to believe it’s a two-party system and it’s winner-takes-all, if you now introduce something like a referendum where every vote counts, but people are still conditioned to, I don’t bother to turn out to vote because my vote doesn’t matter anyway if you live in a safe constituency that’s Tory or Labour traditionally. If that’s the mindset that people take to participating in a referendum, that’s what they know about democracy, and then this can create a lot of perverse things when it comes to when the referendum that happened. How should we behave post-referendum outcome if we don’t like the referendum outcome? What we see in the data is that there was a lot of regretful Leavers. There was a non-negligible part of the Leave vote was an expressive protest vote. It was: I don’t like the status quo.
The status quo is obviously not working because the UK has a crumbling public institution, crumbling public infrastructure, to some extent dysfunctional state. Many people’s interface with the state has worsened and worsened, with schools being closed because they have not been repaired, public spending cuts, potholes, local library closures, local sports club closures. That was the post-global-financial-crisis austerity. That was being felt everywhere. Here came the Brexiteers that were pinning that narrative onto, on average, healthy people coming to the UK who were contributing to the economy and being called bloody immigrants. That was the toxicity of that. That winner-takes-all culture was now confronted with, well, hang on, how should I now, if I wanted there to be a second referendum. Is this now against, am I not a Democrat anymore if I demand for another say? So people were utterly confused.
But we do see among Leave voters, when Leave voters were informed about the uncertainty about their preference for or against the second referendum. We say, among your Leave voters, There’s a big share who feels uncertain about whether it’s appropriate to have a second referendum or not. We see that among the Leave voters, more people were willing to publicly express their support in favor of a second referendum once they were informed that within their own camp, there’s a lot of uncertainty about that norm. Because nobody knew what is appropriate because it doesn’t exist that instrument of PR of a direct vote doesn’t exist. It doesn’t have a culture like in Switzerland where it’s very common for people to very regularly be asked to participate in substantive decisions on matters of the state. This system here is not one of direct democracy, or a literate democracy that creates literate people that participate.
So I think this was also very fundamentally important. And there’s this third dimension of the lack of integrity of how that referendum was fought. there was lies and misattribution, but it’s even more perverse than that because it was the first time that we had a large-scale deployment of neural networks, like an element of what we now call large language models, like on society through the deployment of micro-targeting and using online social media networks. What they did was very simple. They took a questionnaire of UKIP-adjacent voters and then they’ve looked for people who look very similar on a large set of traits. That’s not the same number of male versus female or age. This was targeting of individuals that is on behavioral traits, psychological markers that then the Brexit campaign used to sell the political product of Brexit.
As a different product for different audiences in a way where the political product is logically incompatible. You cannot lower food prices, for example, for meat while maintaining animal welfare standards. But you are campaigning for some people, you are targeting them. When we leave the EU, we’re going to increase animal welfare standards. Leaving the EU, we’re going to lower your food prices. This now means we’re lowering animal welfare standards because we’re importing more lower animal welfare standards from elsewhere. On that, I could talk about the recent UK GCC trade deal, which is an important one. But this disingenuity in the electoral process decoupled a very fundamentally important democratic principle, which is that your political platform needs to be consistent, as it logically consists. It cannot be inherently contradictory.
That’s the bit that, the cost of contradicting yourself is not very high if you’re targeting your contradictions to audiences that have no day-to-day normal interactions because they’re in a completely segmented information environment. That is what social media targeting and people consuming most information is mediated through social media feeds allows. It allows the construction of a separate information reality where there’s no risk that this group and that group would ever be in the same room to have to debate. It’s: well, hang on. Brexit was this. For you, Brexit was that. You voted because it was that, or you voted because of that. But these are incompatible. We’ve been sold a lie.
[NZZ David Signer:]
I think in a place like Grimsby, the general opinion hasn’t changed that much.
[Thiemo Fetzer:]
On this one, it’s the same old story. It’s the same story that connects why a vote for populism in the UK, a model that predicts populism in the UK would also work really well. It does work really well explaining a vote for Le Pen in France. The gradients that explain it is the most important factor is level of education, which in some level might be correlated with intelligence. I’m not suggesting that this, but this is, there is a non-zero relationship between intelligence and educational outcomes. Some education systems manage that better to produce because then if you think of intelligence education and then inequality as being related some societies for the same amount of intelligence they produce less dispersion and inequality which means more cohesion better cooperation working together and I think Europe, on average, does that really well, creating cohesive cultures, Switzerland, Germany and so on average really well.
But on the UK around the vote for Brexit, what I always used to say is the vote for Brexit was not decided by The average Brexiteer voter. The average Brexiteer voter, the average reform voters, they would have always voted for, for Brexit, even 30 years ago, when, 1975 was the first EU referendum, I’m pretty sure there is a strong overlap. If you had the referendum 10 years earlier, the average person who voted for Brexit would have voted for Brexit also 10 years earlier. What matters is the marginal voter that got swayed, and a lot of people got swayed on premises, false premises. Like we see that.
There is a beautiful data point. We see that in some surveys before the referendum, people were asked, what do they think is the probability of Leave to win? They said, oh, up to 100%. They could be 100% certain that Leave would win. We see that among Leave voters, the amount of people who are regretting having voted Leave is disproportionately high among Leave voters who didn’t expect Leave to win. Which to me is the stupid Brexit vote of expressive voting. It’s people who voted Leave not expecting Leave to win, but they wanted to vote Leave to send a message. That easily shaves off your 3%, 4% of the Leave margin victory. Then you have.
The people who voted for Brexit on the premise of a causal relationship that was suggested between UK transfer payments to the European budget relative to spending on the NHS. That was the bit while the local healthcare system for many people was very visibly falling into disrepair because of post-global-financial-crisis austerity. That is another set of people where there was just a misattribution of evidence. Then that’s the margin that we’re talking about. The referendum turnout was around 70%, not the full electorate. Younger people, on average, participated less than older people. You end up with a political equilibrium where if you’ve got one third of the 70% who show up to vote can decide the electoral fate of a society, especially in a place like the UK. Usually with populism, it tops out at about one third. Would you think a place like Grimsby had a lot of these protest voters?
[NZZ David Signer:]
No, I don’t know.
[Thiemo Fetzer:]
A place like Grimsby would have voted Brexit 10 years ago and elsewhere. The vote for Brexit was carried out by people in London who were upset by the benefit cuts, who voted for leave in smaller communities like around Warwick, for example, Kenilworth. The people in Grimsby would have voted for Brexit 10 years ago, 20 years ago, 30 years ago. They would vote for Nigel Farage, they would vote for Trump, they would vote for anything that is very strongly evoking emotions. Pitting us against them, just invoking populist tradition. That’s why this is something I have some issues with how media works. Because the media always then looks at the outliers and the vote distribution, say, oh, let’s go to Boston. Boston voted heavily for Brexit.
[NZZ David Signer:]
I know Boston. I made a reportage about it. Yeah, exactly.
[Thiemo Fetzer:]
These are then picked up as being the example case of Brexit, and then the broader public thinks of them as representative, but the average, the consequential Brexit voter is not to be found in Boston. The consequential Brexit voter is some protest voter in London. It’s the average remain voter who didn’t show up to vote and hence empowered the vote for every marginal Brexit voter. It’s slightly more complicated than that. But the media environment, you always look at the data, you look at some outliers.
The extreme attitudes that came through the Brexit vote, they would have come through in a different dimension, a different issue, even before. It comes with education deprivation, economic deprivation. It’s a conjunction of many things that come together. But these are people also who you would not be able to sway another way. Persuasion would not work. That’s why populism usually, as I said, it tops out at most that the vote share that populism can achieve. In particular, right-wing is probably one third. Unfortunately, in a system with first-past-the-post system, that’s more than enough to win power. I also think that the UK had a massive democratic deficit for that. Nigel Farage was never subject to parliamentary scrutiny that he’s now subject to, because he never served as an MP. He serves as an MP, and all of a sudden he needs to declare his registers of interest. All of a sudden, there are five million in undeclared donations or was it a gift? Was it not a gift?
All of a sudden, all of that starts popping up. So not being in a position where he could be held democratically accountable allowed him to be a politician who is not constrained in any way by having to deliver and that’s it is dangerous. You don’t want populists to be in a position where they could deliver. They need to understand and learn how the process actually works. For that, they need to be participating in the electoral process. But despite coming out in, for example, 2015 with about 15 to 17 percent of the vote, which resulted, David Cameron pledged to hold an EU referendum to his conservatives because the UKIP was gaining votes in local elections. Local elections, mostly old people vote, young people don’t.
That resulted in political pressure at the bottom up, which he then tried to appease the right-wing in his party by saying, well, let’s hold an election and let’s hold a referendum in or out if I were to return to power in 2015. He made that as a promise to appease because they were losing councillors to the to UKIP. There was more and more defection of local councils to UKIP. He was hoping that this would not be called upon because he was hoping for a continuation of the coalition government with the Lib Dems. That coalition government with the Lib Dems was incredibly unpopular. Because they are the ones who unleashed all the public spending cuts from 2010 onwards. The tripling of tuition fees and, anyways, like very unpopular. So what happened in the political equilibrium, the Lib Dems got wiped out electorally. The conservatives lost a little bit. That was the votes went to UKIP.
In relative terms, then the Conservative-Lib Dem coalition could no longer hold because the Lib Dems got electorally wiped out. So the Conservatives could run a government by themselves. There was one UKIP MP, but effectively no UKIP parliamentary representation, despite the party having won 15% of the popular vote. That is not what democracy looks like. It enables players to be competing very effectively through the megaphone of social media. Hypercharged political communication, which is what we see with Nigel Farage, often algorithmically empowered because these algorithms love divisive content plus financial backing potentially from abroad. It enables these individuals to effectively chase around the politicians who are in the system, who are working with and through the system from the sidelines. That is the most dangerous part. I’m not suggesting that it’s desirable to try to have the German, that was the fallacy of the Zentrum Partei in Germany in the 1930s.
Oh, once he’s touched by power, he will be demystified. But these political operatives, because they know how to play dirty, they’re very willing to play dirty. Very casual with casting away individuals who’ve put potentially their trust in them in a misguided fashion. That’s why it’s so dangerous to let them, when the risk in the UK is zero-one, either not being in power or moving to full power, that could happen here in a way that it happened in Germany in the 1930s, effectively. Move from zero power to absolute power. That’s why… Always happens like in the US with Trump, but he’s probably also going to be demystified. The US has more checks and balances than the UK. That’s why for the UK, it’s much more consequential.
It could be much more consequential having Nigel Farage as a prime minister than in the US having Donald Trump, because checks and balances in the US are structurally stronger. The checks and balances in this country are tied to the unwritten constitution.
That’s why here it’s so dangerous. Trump is a temporal phenomenon. Things like Brexit, conditional on certain policy decisions that are being debated on now around trade in services. The UK is in a very fragile position. It’s throwing itself at any lifeline that’s been given. One of the lifelines is the US now, through its economic prosperity deal, the trade deal that they signed last year. That lifeline is not very solid, because it’s a different topic, but an important one. That lifeline could result in UK making policy choices that might lead to permanent severance of its ability to reintegrate with the single market. All the while, we’re finally in Europe starting to get our act together to complete the single market, which I know has been an issue for the Swiss, which I think is a great thing. I’m very happy.
I’m very happy that people like Mario Draghi and Enrico Letta have stepped up and provided their voice for that, championing that. Because for some reason, the younger voices, they had a hard time being heard. It’s ridiculous that we don’t have a single company regime. It’s ridiculous that we cannot set up a type of Delaware LLC to serve the whole single market, that we have to rely on US corporate structures for that.
[NZZ David Signer:]
But talking about re-entry, it looks like there is more within the Labour Party. They are directing more and more in that direction, but it’s not going to happen within the next three years and then probably Nigel Farage will be there until it’s over?
[Thiemo Fetzer:]
Let’s see how Nigel Farage will continue because now there’s an even further right party that is also very media savvy. That can help take the shine off, but that’s part of how then in a system like this, it creates more and greater extremity. There are a lot of theories in political science that explain exactly this phenomenon that you then do vote splitting by moving even further to the right, which is what we’re seeing. On the UK’s relationship with the European Union, Europe is working very hard to become more attractive. Which is out of necessity. I think the expansion towards the East can help in that. Just because, thanks to Putin, there is a reliance and a need for Ukraine, ultimately, for our security. This extends to the UK. The question on the UK rejoining is that, they will look at this as cost and benefit. I do hope, or I’m quite sincere on this, that Europe has more industrial depth in some sense than the US.
Europe is structurally attractive for the UK. Conditional on Europe getting its act together. There will also be continued and further European institutional reform around some of the procedures so that Europe could not be in a hold up situation like it happened with Viktor Orban. The political construct might evolve, which has also been, it could be accommodating to the UK. I am not without hope that this could materialize sooner. But that’s why it’s important to invest in the fabric of the relationships between the peoples in Europe and the UK. That works through facilitating deep human connections cultural exchange, student exchanges, this university, education. These are important pillars. In Europe, we’re very clear-sighted on this. The UK is now still a bit, well, too calculating because they look at the tuition fees for the universities.
[NZZ David Signer:]
If I may ask it’s not going to happen in the next three years? With Reform UK, it’s never going to happen.
[Thiemo Fetzer:]
Yes, the UK could vote for Reform. Can it get worse? On the UK’s position relative to Europe, even with Reform in power, if that were to happen, Reform being in power, to me, it’s not very conceivable that this would happen again. Like the risk, especially if we have more far-right proliferation, that’s not of the BNP type, but of the Restore Britain type, it should be fine. The population movement that we have into the UK, with immigration, will structurally reduce the appeal of the far-right because it’s mostly immigration of the type that the far right mobilizes against. It’s usually people of color or of visibly different ethnicity. Unlike the Europeans that just blended in, the Eastern Europeans that just visually blended in.
Now we have two and a half million people who arrived in the last five years that are not blending in, they’re visibly different. So I have a hard time seeing that they will not be confronted with some of the nasty dark underbelly that is associated with Reform UK and the further right. Eventually they are the ones who will bring children in this society. I hope, it’s nice for people to have that as part of their life. So I think structurally that will matter. If we look at the data on even the EU referendum, it was the last time it was the last time that a vote and a plurality for something like Brexit could even happen. It was in an unfair setting.
In the context of the European refugee crisis, where there was a visible loss of control because the movement of people from Syria have been actively weaponized. It may well have been the red line that was not delivered on by Obama, it could have been Erdogan actively helping move people It was these visual images, the high salience of it, in the context of structural deprivation of public services in the UK.
It was the last time that I think it would have been counterfactually possible for the UK to not vote for, to vote for Leave. We have a young generation. If anything, the support for rejoining or closer union with Europe is now, it’s going to be just growing year and year and year on. That a lot of people after they’ve been after that pipe dream or that let’s call it, well, the promise that was misleading or inherently contradictory; it was a house of cards. Once that house of cards collapses, then it’s something that has collapsed. At the same time, Europe is cleaning up its house, which is a good thing on average, it will make it ever more compelling, especially in a world of incredible geopolitical fragmentation.
A weaponization of structural asymmetries that go to the extreme where Donald Trump has effectively weaponized the security vulnerabilities that Europe has in order to extort concessions around the implementation of digital service taxes. So to prop up Silicon Valley. I’m quite certain, one thing I’m quite certain of is that AI will induce us to rethink about the deployment of technologies at scale in society at a speed that’s sufficient that there needs to be a social consensus over of what is the right speed at which we deploy such technology. Because the change that it can do without people being sufficiently educated, sufficiently literate, and without people having sufficiently hard thought about what the implications of this might be for the labor market, for the organization of society, for resilience, for the incentives to invest in education. I think on average, Europe is going to come out on this much better than the US and China. In that sense, the UK’s cultural approach is probably closer to that of continental Europe than to the US. So I don’t want to jinx it, but I think if anything, we see the support is increasing, the base of the Leave support is further eroding, it’s just dying away. While at the same time we have young people who will confront their older generation with why have you deprived us from the opportunity to live and study and love anywhere in a continent of 27 nations that have decided to work together, to cooperate, rather than to make conflict. Especially in a world where now we’re heading to more and more conflict in so many dimensions.
[NZZ David Signer:]
We are now talking about on quite a high and abstract macro level. Maybe we could try to go back to everyday experiences, daily lives of normal people in a place like Grimsby. How do they feel? What do they think? What are their problems?
[Thiemo Fetzer:]
Okay, so the average person, this is very, it’s abstract for me to say that? But the average person’s problems have nothing to do with the European Union, have nothing to do with Brexit, have very much something to do with a lack of economic opportunity, a lack of housing, a lack of perspective and happiness, and it’s just the psychology of poverty. It’s the psychology of deprivation. People who feel like they have given up on life, there’s nothing much positive that life has to offer to them, that the society has to offer them, that creates that latent pool of aggression and anger that can be channeled and redirected in whatever direction. Can be targeted towards immigrants, it can be targeted towards the state, towards the elites. It’s a mindset of a lack of agency for your own life that I think comes oftentimes with the psychology of poverty. Oh, there’s nothing I can do about this. There’s nothing I can do about this.
That’s the psychology of a place like this, where also then the environment, if you want to move something or you change something, you, because Britain is a deeply conservative society in some dimensions. If you want to make a change, it becomes nearly impossible to do anything. People are actively discouraged because this is a structurally conservative country. So this I think the problem when it just sucks the lifeblood of communities. It’s a place where I’m pretty sure if you pay close attention, you will see many more people with mobility constraints. You will see many more people with walking sticks. You will see many people who are obese, who look visibly unhealthy. Which in one way of saying that these are people who have an unhealthy relationship with themselves. That is very hard to say. It’s like you say, oh, you’re poor because you choose to be poor. That’s not necessarily how I want to portray it. It is sometimes a very comfortable space psychologically to consider yourself the victim of a system that has been abusive or not supportive.
It’s very easy to arrive at that victimhood mentality in a culture that does not have a universal public education system. Where going to a fancy school sets you off in a life trajectory that is very different from the life trajectory that you would be set off in a public school. It’s very comfortable and easy to then arrive at that place that life is an unfair game from the start. So ending up in a shit position of what you perceive to be not a happy place is something that’s built in to how this society works. Because inequality of opportunity is built into the system. Then you arrive at that point where saying there’s no point. I have nothing to lose anymore. I’m voting with anybody who is channeling that passive anger that I have, that I direct at myself, potentially through, an unhealthy relationship with my own body. Obesity, drug abuse, smoking, alcohol.
Betting and gambling shops, I am sure there’s going to be a lot more gambling shops. The problem is there’s a lot of people who make money off the betting shops. There’s a lot of people who make money off the drug and alcohol abuse. There’s a lot of people who make money off selling sugary, unhealthy drinks. It’s part of the extractive relationship that British capitalism produces on its own people. So when you’re then surrounded by people who’ve been spatially sorted into good places versus deprived places, and if you’re a reference category, if there’s no more role models to look up for because they’ve all left, because they’ve been told to go to a better place, that reinforces that psychology of despair, that psychology of being forgotten.
Then you have a politician who walks along, who goes to the pub, which is how, around here, you can meet Nigel Farage every now and then because he visits the local pubs. He chats to the guys, he seems relatable, gets the selfies, because he doesn’t need to be in the office to draft bills, because he doesn’t need to work, because he is just not in a position of power. That is how you can win hearts and minds. Because those people will remember having met Nigel Farage. They will tell their friends, oh, he’s a straight talking chap. He doesn’t use big words. That’s how they do it.
At the end of the day, they’re just selling snake oil. That’s the psychology of the place. In the countries that I’ve advised, in some places, the psychology of place matters, urban design matters. Investing an environment like with trees. In Boston, Grimsby etc you’ll see bricks and slabs of concrete, dead places, no living thing, low maintenance, low running costs. But low maintenance and low running costs means no regular employment from the local government. It is suggesting a place that is not valued. If you start seeing litter around the street, everybody else does it. So the psychology of it swings to the extremes. That’s what this place is incarnating in the visual appeal, but also in the psychology of the people. So it’s self-reinforcing. If we look at the EU referendum and the electorate, roughly one third didn’t show up to vote, one third voted Remain, one third voted Leave.
In Grimsby, 70% of the people voted Leave. So I think it’s great to visit a place like Grimsby. It’s important and it’s a scar on societies that places like this exist. Now the British policy instrument to deal with these places is just going to make it worse. Or it’s just going to lead to mutually reinforcing. Because it’s shipping more people who’ve been selected out of places like the bigger cities to be shipped them off there. You’re going to have very few kids. You’re going to see very few young people, babies. If you now ship in more pensioners, displaced benefit claimants, those in temporary housing and other old people.
If a community sends the vibe of this place is going down and it’s only got death awaiting you, it creates a psychology of despair. That psychology may well be that: my life doesn’t matter. I don’t matter. It reinforces thoughts such as: The system is rigged against me anyways. There is no reason to make any effort. But I was born here, I deserve to be here. Anybody else who comes here does not have the same rights, or the same claim to be here, that I have. So if they get a welfare check, they’re less deserving than me. It’s fundamentally messed up. So that’s to me, also, I’ve been in, small, lived in smaller, I lived in Guilford, which is very affluent, in Surrey, lived in Coventry for some time. Even in Coventry, it’s just insane after the Second World War, because Coventry, was heavily bombed. It was the one British city that the German air force completely destroyed almost. They’ve rebuilt this with some temporary housing after the war, which was steel frames and very thin walls. It was meant as temporary. It was not meant to stay. They’re still standing there. They’ve never patched it up properly.
[NZZ David Signer:]
: When you talked about this culture of poverty in Grimsby, you said it’s a very conservative culture or society. What did you mean by that?
[Thiemo Fetzer:]
When you are in a position of poverty, your identity becomes much more important. What makes up what you think is your identity. So because there’s very little that you are proud about in your own life, you don’t derive a worth of self from who you are. But what do people see in the mirror? On average, what you will see is a white person who looks physically unhealthy, probably has a BMI that’s unhealthy. They will look at themselves in the mirror and they will not see a proud human there who is proud of who they are. Then they are proud of what they think they represent. That pride is attached in markers of identity. A marker of identity could be being British and being deserving of that welfare check, Belonging there. Another marker of identity could be, if they are in a heterosexual relationship, that this is a marker of their identity. That is the right, the way it has to be. It is a marker that they are baptized, probably not going to church.
It becomes a marker of identity that describes what is us in a way that is transcending the individual that they might not have prided. They would describe themselves as white, Christian, heterosexual. Who live in normal relationships and make that a part of defining what a tribe looks like and what normal looks like. It becomes a form of exclusion. It becomes a marker of us versus them because you hold on to the little bits of identity that go beyond of who you are yourself if you don’t derive joy and pride in who you are yourself. Who you are yourself not having joy and pride in that is the product of a system that creates an uneven playing field from the start. So in Grimsby, you will then see more people like that who have that as a marker of their identity because they’re clustered together. There’s many more people who are deprived.
So that’s why there you might have more cohesion within that mindset where people don’t talk with pride about what they do on a day-to-day basis because their life is pretty bleak anyways. But they will for sure talk a lot about politics. They will for sure talk a lot about the things that are beyond their control. Because what is within their control, they feel like they’re disempowered to make a change. The psychology what would be really useful if you were to do a very long piece on the place like Grimsby, would be to read books on the psychology of poverty. Because it very much, what we know from slums in Delhi, India, also translates into places like Grimsby.
I think that’s probably what will be your experience. I would encourage you to pay very close attention also to, the physical environment of what it feels like. When you go to Switzerland, for me Switzerland is always a bit too… It misses this bit of edginess. It’s too nice. That’s the thing I like about the UK. In East London, there are bits of this.
There is this bit about the bombs having helped. But when you go to Switzerland, it’s a little bit too nice. But there, it will feel like visual despair and this depression has just written all over it. That’s the problem, the visual interface matters. The British state is very bad at managing the visual interface. That’s partly due to, that is a very interesting but a different topic around local decline, what creates dynamics of local decline. For example, around the high street, that’s something we struggle with all over Europe because of online commerce, which I hope will be fixed. Because I think people will start realizing, shit, I want to meet real people, not fake people that I don’t know whether they’re real or not real. That’s my hope where technology will get us to. What you’ll see is that in Europe, when you have a retail place close, the local government, like in the communities, so they would try to look at trying to find a tenant, trying to find a use, repurpose it. They would actively manage the transformation, would have actively attempted to manage the transformation of the high street or the places of social consumption. What happened in the UK was that a lot of these places just exited or would have been then replaced with, shops that are not necessarily conducive to sending good vibes. What used to be a pub has closed and was replaced with a betting shop or a vape shop or a liquor shop or a pawn shop. Which is an expression of demand to some extent, but it’s also a choice that policymakers can actively shape.
In this case, if the landlord says it’s either a pawn shop or no rental income, and the local government revenues strongly depend on business rates, which is a tax on the rental income that will be paid by the tenant, It creates a strong incentive to whatever you’ve got going there, just put anything in. That this might be that bad for business of the remaining other shops, if you have a clothes shop next to now a pawn shop next to a betting shop, the foot traffic might change relative to what it used to be if it was a cafe before or a pub. So it can lead to a cascading effect on the high street that is very bad for business. Because every shop owner just thinks for themselves, every building owner just thinks for themselves, they don’t think of the whole ecosystem. Whereas in Europe, we have much stronger on average planning and control systems.
So when in Germany, a shop proposal gets done, people think about the wider economic ecosystem in which this shop fits, so that it creates positive synergy, so that it creates a place that people want to visit.
[NZZ David Signer:]
I think there are efforts and organizations.
[Thiemo Fetzer:]
I’ve been talking to them. Yes, there are. And in the UK, there’s been part of the leveling up. There was the High Street Futures. I’m very much familiar with all of this. There are attempts.
[NZZ David Signer:]
Also in Grimsby.
[Thiemo Fetzer:]
Yes, there are attempts. They’re not very successful because ultimately it is well, first of all, fragmented ownership. People don’t know who the owners are, who owns an interest, because the UK, on this one, internationally, very big problem. Thanks to the war in Ukraine, we now have a beneficial ownership register. We know if a property is held through an offshore vehicle, that now there’s a beneficial ownership declaration, there’s transparency. In some instances, people don’t know who the owner of the property is. So there could be this huge coordination cost, just working out, okay, who should we write to figure out who represents that interest? So the coordination friction is just very big because of these informational symmetries. In Germany, usually the Grundbuch, I hear the group is quite accessible, but not necessarily on figuring out beneficial owners or owners.
Part of this is because a lot of tech structuring takes place around real estate in that way. You move it into an offshore vehicle. So I think that makes these things very complicated. And when you are, it’s an equilibrium? It’s an ecosystem where there’s positive spillovers. I always use the example of a flower shop and a funeral home. These two usually go very well together because one business feeds off the other business and one business is very stable? Next to the flower shop, funeral home, next to the funeral home, or the flower shop, there would be a cafe, there would be a library. The value of the flower shop is increasing in the proximity of the next business. Once that system has collapsed, You’re only left with a funeral home, because you buy your flowers online, you don’t go out for cafes, and libraries also don’t exist, so you buy books online.
You end up with having to start rebuilding this from zero. That’s much more costly, because now you need to, at once, to create an ecosystem, convince three potential business to start something. In the first year, if you cut the flower shop back, their business is going to be very shit. It’s going to require, and he’s not going to be advocating for somebody to set, if he’s an honest business person, he would not try to convince their friends to start a cafe next door.
It’s very hard once you’ve moved that equilibrium to move back in. That’s also why we struggle getting rid of your social media or pivoting to a new platform, because we coordinated on that equilibrium. It’s a network effect, spillovers. The rest of the world is suffering from that, because the people who are flushed into these positions of extreme wealth and power, it’s a historical accident that we’ve got Zuckerberg, Musk. These are accidents. That just happened because the value of a network is increasing in number of people using that network. As soon as you cross a crossing condition, as soon as the minimum threshold is breached, it’s almost self-reinforcing. That’s why this needs to come crashing down, ideally not with a slow release. In Europe, we work, on this one, we’re working on it, but on the high street, that’s exactly the same, the same idea that the value of each of them, it’s an ecosystem and the ecosystem recreates and nurtures itself.
That’s why you need state intervention in some instances to prevent that cascading equilibrium to collapse. We are doing it or have done it in the banking sector. Why not elsewhere? That might take the form of let’s call it subsidies or state aid. Very contentious around WTO trade and so on. That is what smart subsidies would do. They would look at the knock-on effects and the spillovers that one business creates on the other and cross-fertilization on the others. You could have a non-profitable plumber who trains lots of plumbers and is a societal, very high value added sector. It’s that now, if you were in the UK, if you were a plumber who trained other plumbers, you would have been in a much worse business position than somebody who didn’t do that, who simply waited for the Poles to arrive. And that’s where the internet destroyed all of that. Because in the internet, you don’t have a number of your local plumber anymore, you find the cheapest supplier.
It’s very easy to just have one website, that then extracts all the rents, that extracts all the matchmaking value. Then nobody’s incentive to train any plumbers anymore. Then you’re left in a society with shitty plumbing, which is also true about the UK. I’m not sure what type of house you live, but it’s usually very creative plumbing if you live in an older house. Yeah, that’s why I never could do the old houses because they’re just, plus the lead. That’s also a big issue in the UK, They’re only slowly starting to talk about this.
[NZZ David Signer:]
About what?
[Thiemo Fetzer:]
There is a lot of lead still. In a place like this, you definitely need to check the drinking water. People in the UK don’t get their drinking water tested. So and this is proposed to some students to study, I’m quite certain what you will see this. So the water around here is quite hard, meaning there’s a lot of calcium. What you would probably see is a gradient in educational attainment that is, given the age of the housing stock, the gradient in educational outcome is strongly decreasing in the distance to the channel. Because the topology of the UK gets a bit hilly towards the edges. There’s more mountains and hills around Wales and stuff like that. Cornwall and so on, which means that the water in the south-east contains more limestone than the groundwater in the north, which has to do with geology.
This then leads to that in a lining or the creation of a protective layer is formed in the pipes, reducing leeching into the drinking water. So that’s why people in the North East, North West may have lower educational attainment, on average. Quite, this is a, I’m quite certain you will find that as evidence of the data because your plumbing is your private job. The state here does not protect you from that. If you have a system in a society that does not value lives in the same way, where some people have a shit-draw in the lottery of life, some have a good draw, and that depends on whether your parents are of status or wealth, inherited or not. Then it creates that extractive relationship between those who are better off and those who are less so.
Some of them who are less fortunate. It gets more perverse if part of this gradient is because your cognitive development might have been impaired through the ingestion of lead through the old plumbing. They’re only now starting to make this a topic. The last mile pipes, the pipes from the house, from the street into the house, there is a non-zero chance that you would have lead in them. Paint, a lot of paint would be lead infused. The US, it’s the same story. We know people don’t like to talk about this, but that’s the reality. This is how the absence of German bombing could have impacted cognitive development in a positive way. This is how you could turn that into a joke.
I’m curious to see what you’re going to write about Grimsby. I remember in Coventry when I was like looking at these high streets and it’s just like you feel the psychology of despair, the psychology of no aspiration, the psychology of no hope. That’s where a few immigrants can help in some sense because they come here, opportunity, their outside option is potentially joblessness in Southeast Asia or a very casualization for that, they will approach it very different. That creates a very misgiving loop because if then the natives see that a bloody immigrant is doing better than they can, it is very easy to mobilize because envy is again a power that can be tapped in. They are less deserving than they are. That’s what why I dislike populism so much because it’s pitting one group against the other, pitting one migrant group against the other, which is also what happened in the EU referendum.
[NZZ David Signer:]
This was something I experienced in Boston. Somehow I was surprised. It was less depressing than I thought, maybe because of all these immigrants and a lot of shops and restaurants.
[Thiemo Fetzer:]
If you look at many of these communities, Boston has a huge Polish population. They are the lifeline of this. Then they are taking the jobs that the local guys don’t do. The local guys, they don’t start their own business.
That’s the bit that the immigration breathes life, can breathe life into these communities. Still, it is possible for populists to campaign on an anti-immigration platform, where in fact it leaves these places in a better state than they would have been had it not been. It’s a matter of what Boston would look like without the influx of the Poles, and it probably would be much worse.
[NZZ David Signer:]
Is Grimsby similar to Boston or is it worse?
[Thiemo Fetzer:]
On this one, I don’t know. I have not been in Grimsby. I should because it’s not that far. But I will get back to on the numbers because I know that a lot of these coastal towns, they will have seen a lot of internal migration. But a lot of the internal migration, can be linked to housing benefit cuts. Not people who are working. Yeah, it would be people on benefits for whom the benefits were not covering the rent anymore. Part of the welfare reforms, I also wrote a paper on this. That were implemented were decoupling the housing benefit from the rental market. It used to be that the housing benefit would be high enough to cover the rent for 50% of the properties that would be available on the rental market.
That was lowered to one third and then it was frozen. now, if you’re on benefits, in most of London, you cannot afford a rental home, which means you, what they then do now, benefit claimants, they would go to their council and then the council would try to find them a house outside of London, which is deeply problematic not all benefit claimants on average, it could be they had an accident. There could be many reasons why they become But what this then creates is oftentimes it can separate families. Yeah, because then you have like people who, who then have don’t have access to the kids anymore.
Ethically super problematic in my view. That’s a lot of the source of domestic migration, in particular to the less good places. Boston was definitely receiving a lot of such internal migrants. Then, if I was if I would be poor, I would move out of London. Resentment because people leave their friendships behind their social networks behind possibly their families behind or if they have children who live here right they would be asked to leave that behind to move to a place I am pretty sure they’re not going to be super happy moving to Boston yeah they’re going to carry that resentment and the narrative for them will still be London’s got so expensive because all the “bloody immigrants”, yeah not that the problem is that the UK has an unhealthy relationship with real estate, as in they don’t build enough homes, quite simple.
In the UK, the way that wealth accumulation in the UK works is through the real estate sector. You become rich by saving money in bricks and mortars, not by building or investing in education. The easiest way to get a 15%, 12% return guaranteed by the British state. The British state is forcing people from London who are on benefits to move to Grimsby, where you over the next 25 years are guaranteed a 10%, 12% return on houses that will be rented out because these people have no other place to go.
If you are a taxpayer, such an investment returns your taxes back to you. I pay my taxes, but then I got my money back from taxpayers’ money. It creates a culture of where people are invested in the UK, but they invest in a social model in the UK that I think I would associate with the fundamental frame of the social contract. It’s that extractive relationship that almost creates a necessity for places like Boston to exist. It makes it necessary for these places to exist. That’s what I struggle with, my life in the UK so much, because I feel, well, I’m being drawn into, I should be doing all of that myself. I should be benefiting from all of these de facto tax-subsidized giveaways from the rich for the rich.
Because these are returns you can only make, 140,000 pounds, buy a flat in Grimsby that is rented at a high premium through the Department for Work and Pensions, like the benefits welfare ministry, to some people who are then paying that subsidized rent. In my mind, it’s just crying out loud saying, why doesn’t the public build some houses there? Cut out the middleman.
This is not what capitalism, a healthy capitalism looks like. We’re talking about bricks and mortar. See, we’re not talking about innovation, technology, factories. We’re about meeting the basic needs of society, which is housing people. Sorry, on this one, I get so upset. Because yeah, I could invest that money, but I feel It’s just not an ethical investment.
Brexit is very personal in some sense as well, partly because, I feel the lack of sincerity around it and how it was orchestrated almost politically. I think that’s a big part, but at some point I was asked to make a choice. I’m also not British. I have not become British citizen. Ex post, that turns out to be tax-advantageous, but that’s ridiculous. But I consider this to be an important part of my life. It’s part of who I am? I think I have a sense of belonging. This is home.
At the same time, this is a country that in and around the referendum is actively mobilized one immigration group against the other. It was the South Asian Indian community against the Europeans. That’s what they did.
Many of the South Asians, they could vote. Whereas the Europeans whose fundamental right of existence in this country was being challenged by that referendum had no vote. Deeply undemocratic in that sense. It’s creating almost like a cascading demand for immigration into the country that again is just vulnerable and that could be structurally exploited. That makes it easy or more compelling to not invest in your own population. Which again to me, a place like Grimsby, educational deprivation, skills deprivation, structural dependencies, that’s all in my view an incarnation of an extractive mindset, extractive relationship. Between different human subjects. I don’t think this is helpful for a society. Because we share that one human condition, life is weird. We don’t know why we exist. We don’t know what our purpose is. Why are we on this planet?
Then to create these extractive relationships, I find it just incredibly unethical and deeply problematic. So yeah, at some point I was asked to make a choice between the UK and Europe. I just did not feel able to make that choice. Like you don’t force people to make a choice of who they are. I consider myself to be a European in the UK. I very much like Europe, Germany, and I could imagine living there. Berlin, I could have been split between Berlin and London, and that would have been absolutely nice. Between Bonn, I was oh, I can take the train from here to Bonn. Very nice, very useful. Low carbon, but the train it’s really expensive, but, would be doable. I picked Bonn because I thought I know how university works. Whereas in Berlin it was at WZB, Wissenschaftszentrum Berlin, It’s only a graduate thing. They only do post-docs. I had not appreciated that the WZB is the place to be in Germany. I just didn’t know the place.
Only later on, because I’m not good at networking, only then I realized that the person who then was advocating to hire me at some point wanted to become the president of Germany. I didn’t have that on my radar. I didn’t, I don’t, because at the end of the day, I don’t know when I meet somebody, you get to know them and then you get to know them. I can read the CVs, but that means nothing. So yeah, I felt that was the worst decision in my life — so far — because it would have been structurally better in so many dimensions. Yeah, now I’m really saddened for having lost that opportunity, because Berlin is the one city that I think comes the closest to London. Without being London.