The UK referendum has highlighted the existence of a strong undercurrent post the Great Financial Crisis: a fight between conventional and unconventional forces.
It was conventional to see Europe as a great enterprise, especially with world wars in the rear-view mirror. Until that notion got challenged in a high profile way this week. In the US, the presidential election has been and continues to be influenced by unconventional ideas, with a contest likely to be spectacularly nasty (watch an awesome interview of public-opinion guru Frank Luntz on the BBC on Thursday here). This adds to unconventional economic correlations (high employment but low wage inflation), unconventional monetary policies (negative interest rates), unconventional oil (uncontrolled supply), unconventional sales channels (e-commerce) with unconventional business models (e.g. product-services systems) lurking whilst, at the geopolitical level, the world has been faced with unconventional threats (terrorism). There is a pattern.
Historians would surely indicate that the current times are not dissimilar from past periods: Isn’t ‘change’ once again blown out of proportion? Yet, it does feel like established values and concepts are being attacked on multiple fronts and at the same time, and so is the Establishment behind them, from political parties to Management teams via economists, the Fed, OPEC and the military. With conventional frameworks deemed to be outdated, new answers are being looked for. However, the unconventional responses have yet to be fully defined and refined, which has been affecting their appeal as a viable alternative. What is the solution to the dangerous vacuum created by this situation?
In his book ‘Built to last’ (1994), Jim Collins introduced the concept of the ‘Genius of the And’ as a response to the ‘Tyranny of the Or’. Mr. Collins argues that ‘the Tyranny of the Or’ pushes people to believe that things can be either A or B but not both: Invest in the future or perform in the short term; value-driven or profit-driven; low cost or quality; stakeholders or shareholders, etc. Successful organizations built to last must ‘exhibit a dynamic duality’ i.e. achieve both at the same time, all the time. The same goes for the conventional and the unconventional streams at the political, economic and business levels. The way forward must involve both.
The St Louis Fed recently illustrated this approach. This organization has just rewritten the economic model for the US (paper available here): Since last week, the conventional notion that the US economy should at all times be reverting to a single, long-run steady state is gone - forever. Without rejecting some of the conventional links which exist between output, inflation, employment and interest rates, the St Louis Fed explains that from now on, macro-economic outcomes have to be seen in terms of regimes. According to this new narrative, the current regime (low growth, low interest rates, low inflation) has reached an equilibrium, instead of being on its way to the formerly assumed steady state. Get used to the current regime: It may be replaced by a different regime at some point, but that is ‘not forecastable’.
So the St Louis Fed has found an answer, a new paradigm where the conventional and the unconventional co-exist. The leadership of the rest of the Establishment must redefine theirs using the same approach. And eventually, in the specific case of this week’s vote, it will become clear that Great Britain can be both in Europe and out of Europe in a relationship built to last.
More generally, the world must continue to reinvent itself, and its ability to do so should not be underestimated. As per a quote attributed to the essayist George Bernard Shaw, ‘People who say it cannot be done should not interrupt those who are doing it.’