Vanguard leaders discuss the similarities between the U.S. election results and the UK’s decision to leave the European Union

Vanguard Global Chief Economist Joe Davis, Vanguard Senior Investment Strategist Jonathan Lemco, and Pzena Investment Management Portfolio Manager Allison Fisch discuss similarities between the U.S. election results and the United Kingdom’s decision to leave the European Union.


Jon Cleborne: So one of the questions that came in before the webcast this evening was around Brexit. And thinking about the events of last night, comparing and contrasting them a little bit to what we saw with Brexit and maybe the market experience following Brexit, I’m interested in your guys’ perspective. Is it similar to Brexit? Does it feel like it’s going to be materially different?

Jonathan Lemco: My own view is some of the conditions that led to the Brexit are very similar. Starting with this whole populous notion that we’ve seen in the U.K., that we saw in parts of Western Europe, and parts of LATAM, and now we seem to be seeing in the United States as well. Part of it is fear, and helped to prompt the Brexit as well, just broad-based fear of immigrants, fear of other, what’s going on in other countries, fear of trade, fear of change of everything you think you know. And so some of the conditions, I think, are underlying this, are there. But a sense that your job is somehow not secure, which we heard so much during the U.S. election campaign, with some of the same discussion that we heard during the Brexit debate as well. And why is it not secure? For all kinds of reasons. But maybe if you close your country off, you take a big step to protect your job, you protect your lifestyle, to protect what you value. So I think that underlying a lot of the typically right-wing populous moments that we’re seeing around the world is this basic fear and this sense that if we close ourselves off to some extent, we protect what we have.

Joe Davis: You know we did some research internally, Jon and you know I think the one thing that has been lost, and I don’t disagree with anything, Jonathan, you’ve said. But so why and why now? And I know there was a lot, and I’ve got to be careful here right, because it’s a politically charged argument. And but I think a lot of focus, and you heard it on both sides of the political aisle. We heard it in the Brexit. You hear it in other parts of the world of is globalization. Right. Treated as a zero-sum game. And I think there’s another force that has been at work for 20, 30 years, that to my knowledge, was not uttered once by any political party over the past year. Which I think correlates both highly with Brexit and what occurred at parts of the U.S. election. And so we may see some more parts of this. And this is this disruption related to technology. So it gets to the job-loss anxiety. So I’m not saying there hasn’t been a closure of a factory in some part of the United States that you could trace to some other part of the world. And I’m not, I’m just saying there’s a broader force at work around automation, some will call it productivity, but in a global, digital economy. And that’s why we’ve seen the income levels between those that have certain skills or work in certain industries, outpaced by a significant margin over 40 years, other certain skills, or other certain education levels. And we see this rise in income disparity across every single economy in the world. Which means it cannot solely be globalization. There’s a global force that’s impacting on all economies. And by our research we’ve found that the technology, and technological advance, is good, but in a global digital economy there can be winner-take-all effects. And so I don’t want to push this argument too much, but I think there’s that. It’s been slowly building that you can miss day to day, but I think on a grand scheme of things, that relates to some of the voting patterns, or the dialogue that we’re seeing. My only frustration as an economist, it is solely all those arguments are then hung on globalization. When I said, well, there’s a global force at work called technology, more recently digital technology, it could be automation, it could be manufacturing, and so that enforcement has been in play. And I think that was something I think will come out and be recognized more wildly over the next several months and years, right. Because we’re seeing this. I mean you’re seeing it in parts of China now, right. So this is not a U.S. phenomenon, it’s not a United Kingdom phenomenon, and that’s not to be an alarmist saying. I’m just trying to say what is going on here and there’s multiple forces well beyond just the economy that can play into political sort of environment. But as an economist, I say well, this is something I don’t think is getting enough attention. And when you start to see these data points which occur infrequently, you start to put that mosaic together that I think is helping to explain some of what’s going on to provide some context.

Allison Fisch: I think that’s a really interesting point. And beyond that, I think there are similarities and differences, right, between these two events. And those are some similarities. So that’s a really interesting point about technology I hadn’t completely thought through. But I would say also on top of that you have this sort of force of people rejecting the establishment and rejecting being told what to do. So here, it’s fatigue with the status quo of Washington dysfunction. In the U.K., it’s not wanting to be told what to do by some people far away on the continent. But I would say also what both of these events have in common is that they were a surprise, right. Nobody expected the vote to go this way as of yesterday afternoon. Nobody expected the Brexit vote to go in that direction. In both instances the middle of the night, I’m sure this is true for all of you as well. I’m exchanging emails with my colleagues, and we’re watching the market’s opening overnight. And the whole thing is a big surprise. I think the difference though is that we had forecasts coming out of the IMF and other organizations about the effects of Brexit on the British economy. And that it would be very negative. So the dire reaction of the stock market post–Brexit vote sort of made sense. Now contrasting that with what we experienced here in the U.S., we really don’t know. We don’t know. And so I think sort of the seesawing that we’re seeing in markets makes sense.

Joe Davis: Yes, and we didn’t see that initial immediate drop off in the U.K. economy, right.

Allison Fisch: Yes, we haven’t seen anything yet.

Joe Davis: Even though that was the forecast. Yes, we haven’t seen anything yet.

Jonathan Lemco: So far it’s held up, but these things take a while.

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