Emma Wall: Hello, and welcome to the Morningstar Investment Conference in London. I'm Emma Wall and I'm joined today by Prof. Matthew Goodwin to talk about Brexit.
Hi, Matthew.
Matthew Goodwin: Hi.
Wall: So, we've just heard that the rise in populism is not going away anytime soon and yet, it was such a shock to the institution, particularly here in London when we voted for Brexit not that long ago?
Goodwin: Well, indeed. I mean, I think, the interesting macro question for all investors and analysts is, when you look at things like Brexit or you look at things like Trump or what's happening in Europe, do these shocks represent the fact that we are at the end of a period of volatility and change perhaps as older generations are replaced by sort of younger millennial tolerant generations you might argue.
Or are these events actually telling us that we are near the beginning of a period of change and volatility? And I certainly think it's more the latter than the former. And part of the problem in our debate is we have too much group think in a sense that people are not interrogating thinking to the extent that they should be.
If you look at the Brexit debate, in my industry, we had a big survey two weeks before the referendum, the last 300 opinion pollsters, academics and journalists to predict the result and over 90% said remain and the betting markets basically said remain and the telephone polls said remain.
If you go back now and you look at actually, well, the evolution of public opinion among those key groups, working-class voters, people without degrees, people who felt that they were being squeezed by globalisation and so on, it was quite clear that the levels of distress, levels of concern over those issues and also the issue of immigration could easily deliver a shock.
But group think took over and we weren't interrogating our own modelling and our own thinking as much as we should have been. And my big schtick, if you like, is let's take a step back and look at those long-term trends, but let's look at how actually the west is changing more generally.
Wall: And of course, the decision-making behind both Brexit and the rise of Marine Le Pen in France, although she didn't win and indeed, Trump, is it's not about an economic argument.
A lot of the confirmation bias that you talk of, we definitely as financial journalists are privy to a lot of that. But our discussions were about what's good for the economy, what's good for a free market instead of being about emotive issues which is what rise of populism really is about, isn't it?
Goodwin: Yeah, I think, we've had a very curious disconnect between the financial world and the political or social science world. And we've got one community that I think is still very much focused on rational choice and that this is about economic costs and benefits and we got another community that has been saying, well, concerns over identity and value conflicts are as important if not more important than people's sense of economic performance.
And we need to now actually get into a place where we are having these conversations together and we are actually bringing evidence of both sides together. Because it's certainly true. There are aspects of the Brexit moment and the Trump moment and what's happening in Europe now where economic perceptions of loss or relative deprivation are important.
They aren't the whole story, but they are there. But we also need to think about value conflicts within society, where they come from, how they are exacerbated. We also need to think about generational changes as well. And unfortunately, much of the debate at the moment is focused quite narrowly on those short-term factors; what's happening in the markets right now, what the latest political leaders said about XYZ and that distracts us from the longer-term trends.
Wall: And you said at the beginning that you believe that we are at the beginning of a seismic shift towards this more populist politics. What does that mean both in terms of Brexit and indeed, across Europe where we are still closely aligned?
Goodwin: Yeah. So, what I have in my mind is I don't necessarily think that populist parties are going to be winning every election and sort of – we are not going to have Brexits every year across the continent. But we are going to have quite a sharp rightward drift and that is partly a response to the rise of these populist challenges.
The mainstream parties, I think, will increasingly adopt much of the populist policy platform and rhetoric, especially parties on the centre right. The centre left will increasingly struggle because it doesn't do very well on issues that relate to immigration and identity and it refuses to accept that these are anything more than just about economic scarcity and is being punished accordingly.
But more generally, our politics will become more volatile and fragmented. We know that rates of volatility generally are going up. We know that rates of fragmentation, the number of parties that are campaigning and contesting elections are going up. And we know that voters are becoming, what we would call, as political scientists, de-aligned from the party system.
We know that they are less likely than they were in earlier decades to say, I'm loyal to the main stream. And that means we are all going to be navigating this period of, a more sort of fluid period, chaotic, slightly unpredictable period, together.
Wall: Prof. Goodwin, thank you very much.
Goodwin: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
