What next for UK plc?

2. Strategically position Britain as a trade hub

A prosperous future after Brexit will involve positioning Britain strategically in the global economy, says Linda Yueh, Adjunct Professor of Economics at LBS.

“The UK can do this by securing trade deals to become a hub for global trade, including for services trade. Positioning Britain as a global trade hub would strategically exploit the fact that regional and bilateral free trade agreements (FTA) govern trade that is not covered by the World Trade Organization (WTO).

“For instance, Mexico has a FTA with the European Union (EU) as well as one with the US as part of the North American Free Trade Agreement (NAFTA). US companies exporting from Mexico enjoy tariff-free access to the EU whereas selling directly from America would entail paying a 10% tariff on cars under WTO rules, to give one example.”

“If the UK had a trade deal with the EU after Brexit together with FTAs with countries that do not have a FTA with the EU, then Britain could serve as a hub into the world’s biggest economic bloc.

“Given that it’s predominately a service-based economy, the UK would benefit from greater liberalisation of services trade. Britain has been a force for a greater opening of the services sector in the EU, which it can continue to pursue in a FTA. It would also benefit from continuing to support global initiatives, such as the EU-led Trade in Services Agreement (TiSA) that seeks to open up global markets for services trade in the same way as manufactured goods trade under the WTO regime. This would notably benefit the UK as the second biggest exporter of services in the world.

“If the UK can strategically position itself to remain a hub for international trade while pushing for services liberalisation, then its economic future will look more assured.”

3. Make the gig economy work for you

Herminia Ibarra, Professor of Organisational Behaviour at LBS, says managers are going to have to reinvent themselves and their work continually.

“We’ve seen a shift in how work is organised – from the career to the job to the task. The most rapidly growing segment of the gig economy is the professional and managerial sector, accounting for 59% of the 1.1 million gig workers in the UK, according to a 2016 Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) study.

“Prior to 2008 this was largely due to necessity but now more and more people are choosing to work like this. The under-30s are the most rapidly growing sector – we’ve seen an increase of 66% since 2008 – followed by the over-60s.

“When you look at the new tech-enabled professional gig platforms such as Catalant (which connects companies to talent), the contractors who get more of the gigs on offer are not lonely solo players but small, agile networked firms and “super-connectors.” Catalant’s co-CEO gave me an example of a retailer that posted a job that needed to be completed fast, across 300 stores and many geographies. They pushed it out to one of their consultants who did the rest of the scoping and he was able to mobilise a geographically widespread network of consultants he had already worked with and get it done in 48 hours.

“The platforms are harnessing artificial intelligence (AI) to do the tedious stuff like sifting resumes and interviewing for jobs, and helping their clients do what they don’t do well, like creating job descriptions that are optimised for AI screening. Companies experiencing lower growth markets and cost pressure want to get in on this trend, but often their executives aren’t aware of what is going on, let alone equipped to use it to their advantage.

“All of this means that managers are only going to have to get better at reinventing their job, from doing it in a way that exploits their core competencies to an approach that allows them to explore new ones. They will need to see the big picture and create better scalable processes for doing what needs to get done. It also means we all have to get better at continuous learning, personal reinvention and making the transitions from job to job and gig to gig.”

4. Don’t wait to innovate

Creating strategy is like driving in heavy fog, says Freek Vermeulen, Associate Professor of Strategy and Entrepreneurship at LBS. “My former colleague Don Sull, who now teaches on strategy at MIT Sloan, used to say that. What he meant is that you cannot see much ahead of you.

“Strategic decisions, by definition, have long-term consequences. They can influence the future of your company for years, if not decades, to come. Yet it is very hard to predict what your circumstances will look like 10 or 20 years from now. Even next year can be difficult.

“Anything can happen. Suddenly a new US president may appear from the fog, or a governmental blockade materialises (like the one for Qatar Airways, or Uber in London), or an unexpected competitor introduces a new technology that makes yours virtually obsolete.

“But that is what strategy is about, and what innovation is about: making decisions under uncertainty. In that sense, the new situation the UK finds itself in, since the Brexit referendum, simply confronts companies with more of that: uncertainty. Nobody quite knows how it will play out, what the new situation will be, and how it will influence companies’ room to manoeuvre.

“One thing is certain and that is that when you’re driving in heavy fog, you’d better have a solid ability to respond to unanticipated events and developments, because they surely will happen. Things will appear from the fog that you had never imagined and might not have believed were possible. The main thing to remember, then, is that change is a capability.

“As I describe in my new book Breaking Bad Habits (Harvard Business Review Press, 2017), there are structural ways in which you can build up that capability, but one way or another it will involve simply doing it. You create an adaptable organisation by engaging in proactive changes, rather than waiting for trouble to emerge. Brexit just makes developing that ability all the more important.”

5. Expect regulatory stability in the financial system

Even the cleanest, hardest Brexit will not quickly take us back to light-touch financial regulation, says Richard Portes, Professor of Economics at LBS and Founder and Honorary President of the Centre for Economic Policy Research (CEPR).

“Typically, after a financial crash, regulation tightens, new regulatory agencies emerge or existing ones are reorganised to facilitate more extensive regulation; and then gradually, with some push from the financial sector, regulation eases – until the next crash. In 1997, UK financial regulation went from the Bank of England (BoE) to two regulatory agencies, before merging into a new Financial Services Authority (FSA). The regulators’ new heavy rule book brought such a negative response from the City that the FSA reversed and turned to light-touch regulation based on principles, not detailed rules.

“But the crash of 2007–09 threw a harsh negative light on both the regulations and the structure, which divided authority among the FSA, the BoE, and HM Treasury. So the regulatory cycle turned again: financial regulation and responsibility for financial stability went back to the BoE, in the form of two new subordinate agencies, the Financial Conduct Authority and the Prudential Regulatory Authority.

Banks, insurers, pension funds and other financial institutions now face a wide range of new regulations. But this time, many of these come from a new global environment, which has expanded the role of the Basel Committee on Banking Supervision (BCBS) and a new international Financial Stability Board (FSB); and the EU has introduced many new directives and regulations aimed at bolstering financial stability. International pressures have also brought more regulation of financial markets, especially the huge derivatives markets, with considerable effort to increase transparency in these previously opaque realms.

“Our new institutional structure is more robust, and our regulators will not willingly surrender their powers. The new global environment constrains us too. If we want smooth financial relationships with the rest of Europe, with the City of London remaining its financial hub (perhaps somewhat diminished), we shall have to maintain a high degree of regulatory equivalence with the EU. And we are highly unlikely to exit from the BCBS’s bank capital rules or to ignore the FSB’s proposals. 

“The financial sector has been pushing back globally against various elements of the new regulations and that pressure will continue. But the new much tougher regulatory environment that came out of the Great Depression lasted almost untouched for 50 years. The recent crash was painful, and we continue to suffer from its effects. Here and abroad, the regulators themselves are much more conscious of any build-up up of risk in the financial system. They are determined not to bear responsibility for any new crisis.

“We can therefore expect considerable stability in the new institutional structure and the regulatory framework of the UK financial system, as well as greater financial stability, even as we may experience wrenching changes elsewhere in our economy.”