Brexit’s one certainty

An extraordinary, monumental game-changer or simply the next in a series of crises? There are many different ways to think about Brexit.

By Rafael Ramirez, Director of the Oxford Scenarios Programme and Professor of Practice.

What is Brexit? Is it a monumental one-off break, a big, big game-changer along the lines of the Second World War, a reference point in history that triggers a need to rethink institutions, units of analysis, and political processes? Or is it merely one of a sequence of different events that can be said to have ‘started’ anywhere — perhaps with the tech bubble, through 9/11, the sub-prime mortgage crisis that led to the financial crisis, then the economic crisis, and on to Brexit, only for it to be superseded by other events (the Turkish failed coup?) and others that may arise (The Economist suggests an Italian crisis) this year and in the coming years?

Depending on how one frames it, one can approach one’s strategic thinking about Brexit in very different ways.

How might a strategist move forward? And how can scenario planning help?

An important thing for both political and business leaders is to engage with the complex uncertainty of the situation and seek clarity out of the muddle. It is no good thinking the uncertainty and ambiguity can be smoothed away by whatever David Davis, Liam Fox and Boris Johnson will manage to do. Negotiating and implementing the UK’s future relationship with the EU will be a long process, during which all types of organisations have to keep operating, and all kinds of events will occur to interact with the process in potentially surprising and destabilising ways. Established units of analysis such as ‘the UK’ and ‘the EU’ are themselves up for grabs: in the end the Kingdom might be dis-united and Europe no longer unified.

Scenario planning can be a useful methodology in complex environments such as these: they can help to clarify and make sense of what is happening. In times of rapid and unforecastable change, scenario planning needs to be tentative and regularly updated, allowing the sense-making to become an iterative process.

This process of frequently revisiting and revising a small set of challenging and plausible scenarios has another function. It maps the core disagreements which can then be explored and managed as assets, rather than as blocks to decision-making. In fact, holding multiple plausible and contradictory scenarios in one’s head can be a useful way of learning to live with and reconcile paradoxes.

Scenario planning can also help organisations develop the sophisticated sensory apparatus they require to scan and quickly make sense of changes as they happen. This ability was described by our colleagues Andrew White, Tim Morris, Michael Smets and Amanda Cowan in The CEO Report as ‘Ripple Intelligence’. The Referendum itself took place in the context of many apparently unrelated crises and world developments, which with hindsight turned out to have been significant factors influencing the vote (such as the refugee crisis and the different ways EU countries engaged with it). As the Brexit negotiations begin and then move forward (or not) they will do so in the context of many other changes, some of which we know about (such as a new US President), some of which we can imagine (such as faster-than-expected climate change effects), and some of which we don’t yet know about and have not yet imagined. Leaders need to be able to understand how what they do now can be informed from multiple future vantage points, which is what scenario planning offers to them.

One thing we definitely know about Brexit now is that it is causing a great deal of uncertainty. A good starting point for developing scenario planning in such circumstances is to look in detail at what these uncertainties are.

How protracted will uncertainty be?

Christine Lagarde, Head of the International Monetary Fund, has called for a clear process and timetable for Brexit so that investment confidence returns and people know roughly what to expect. She told the Financial Times: ‘We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision-making.’

The EU too are pushing for a quick triggering of Article 50 — or are they? Certainly Jean-Claude Juncker, President of the European Commission, is, along with European Parliament President Martin Shulz. But not the German Chancellor Angela Merkel…

The UK’s new Prime Minister Theresa May has confirmed that ‘Brexit means Brexit’ but neither that, nor even triggering Article 50, will be enough to provide ‘certainty’ — just a different set of uncertainties. We at this moment ignore whether the process be continuous and orderly or one of ‘fits and starts’ uncertainties.

Of course it is still possible that it may not happen, or it will happen ‘in name only’ — BINO. The longer the triggering of Article 50 is delayed, the more time all parties have to think about alternatives. This could be good for the UK’s negotiating position (see Brexit — a massively complex negotiation lies ahead) but bad for uncertainty.

What might be the scale of the uncertainty?

It is not only unclear how long the uncertainty will last, it is also not clear what its scale will be and how far the unintended consequences of Brexit could stretch — far beyond the UK and Europe. The IMF Chief Economist has called it a ‘spanner in the works’ that has claimed 1% of global growth already.

Within the UK, one can expect some of the trends that we have experienced to bend. According to a Centre for Cities study reported in the Financial Times, London went from contributing the equivalent of the next 25 UK cities to the exchequer 10 years ago to contributing the equivalent of the next 37 cities last year. Can this trend continue if Brexit prompts the departure of big players in the financial sector for Paris, Frankfurt, Amsterdam, Zurich, or Luxembourg? Such a move might reduce some of the inequalities currently dividing London from the rest of the UK, but while a decrease in inequality would be good, it also might mean that there is less public funding available overall.

In Europe there are more referendums in the offing (Hungary and Italy are possibilities) and elections coming up in both France and Germany. It is thought that one of the reasons some EU leaders are keen for the UK to get on with triggering Article 50 is that they are worried that exit-fever is catching. However, other anecdotal evidence suggests that the Brexit vote has had the result of strengthening pro-EU feeling on the streets of Europe. But no one knows how the EU will change and even whether the Euro will survive.

In the larger, world context, when the UK joined the (then) European Community in 1973, many countries including Australia were shocked — they thought it signalled that the UK was turning its back on the Commonwealth. Now the Brexit decision has shocked the world again. The UK receives investment from over 70 countries around the world. It is the largest recipient of foreign direct investment in the EU (although more than half comes from other countries within the EU), and in many countries it is seen as the gateway to the EU. How does the UK’s decision affect them? For example, Australia is currently negotiating a free trade agreement with the EU. How will Brexit change that relationship? And from a practical point of view, how will it be managed when so many of the world’s best negotiators will be working on Brexit?

It is clear that more clarity is now sought, that leaders are rediscovering how scenario planning can help to clarify what my colleague Angela Wilkinson and I called’ TUNA’ conditions — turbulent, uncertain, novel and/or ambiguous ones — and that scenario planning is increasingly being undertaken as an iterative sense-making and even sense-giving manner.

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