Yesterday, we looked at the rise of authoritarian governments, around the world. But you might like to think we’re all fine, in Blighty – after all, we’ve not had a dictator since Oliver Cromwell. But there are three very worrying trends, and they’re all pointing in the same direction: social division, hate speech, and surveillance.

Firstly, the increasing geographical separation of communities along ethnic and cultural lines has led to a real risk of political ghettos forming. The US offers a guide to how this plays out, come election time. Recent analysis has shown that a sharp swing to Donald Trump in the least-diverse areas (over ~92% white) was the key to understanding his victory. By contrast, more mixed areas swung towards the Democrats – on average. It was the votes of these final white bastions that made Trump’s firebrand anti-immigrant rhetoric such a winner on the campaign trail.

In the UK, we’ve seen similar effects – at both ends of the political spectrum. Brexit voting was more strongly predicted by a dislike of multiculturalism than by any other term, as tested by Ashcroft. Other polling from the same firm shows Christians as the most pro-Brexit cultural group, although not the only one. Meanwhile, an overwhelming majority of Muslims and Hindus voted for Remain. Such political polarisation goes well beyond the referendum – and, in some cases, directly undermines democracy. In Tower Hamlets, Lutfur Rahman introduced a nakedly sectarian and deeply corrupt local fiefdom. We were lucky that this regime was quickly snuffed out – but Exponential Investor looked in depth at how this could instead have taken root, and lead to a real challenge to our established system of democracy. It’s an open question whether this of politics will become the new normal, in future.

Secondly, we can see a trend in the media for a of commentary which is shocking to natural democrats. This often directly echoes the media used by dictators in previous decades. Repeatedly, Nazi-era memes are surfacing in our society. The prime minister famously referred to Remainers as “saboteurs”; the Daily Mail called judges “traitors”; and Brexit posters depicted queues of immigrants in a manner almost carbon-copied from Third-Reich propaganda. It’s now unarguable that the UK has adopted a of publicity and discourse which directly adopts the lexicon and iconography of dictators of yesteryear.

Simultaneously, we are seeing a third change: surveillance. There has been a careful construction of a pervasive surveillance state, in both practice and law. Technological progress means the state now possesses a capacity to invade privacy greatly exceeding the East Germany’s former Stasi secret police. Unless you’re taking significant steps to secure your communications, you now need to assume that all your online activity is intercepted. The government is even clumsily trying to crack down on the remaining pillars of private communication, such as WhatsApp and Telegram. As more of our lives move online, attacks on these last hold-outs are an increasingly significant threat to freedom.

Paving a path for dictatorship

I don’t believe for one second that Theresa May has any ambition is to become a dictator – nor do I believe that any the UK’s main political wish to usher in an era of autocracy. However, the history of dictatorships around the world shows that they arise from complacency, not from deliberate planning. When society becomes indifferent to liberties, and allows hateful rhetoric to focus economic frustration on to minorities in an increasingly fractured society, then the path to dictatorship is laid out in front of anyone who might choose to walk down it.

The UK’s isolation, propaganda and xenophobia are global trends

The UK is nothing special; these trends are global. Take for example, the “Enemies of the People” meme. To quote Paul Mason, “Orbán uses it against the billionaire George Soros, Trump uses it against the liberal press, China used it to jail the poet Liu Xiaobo and keep him in prison until his death.” The UK is just one domino in an oncoming rally of global oppression – and its present political system may fall, as others have done.

How to trade it

To see the investment consequences of dictatorship, we only need to look around the world to countries where it has taken root. The change for investors is typically threefold – all of which are catastrophic for wider society.

Firstly, property rights and the rule of law get eroded, and crony capitalism takes its place. The great example of this is modern-day Russia – where organised crime and the state are essentially indistinguishable from one another. Get used to an economy where favouritism, largesse and bribery are the norm.

Secondly, the belligerent strongmen who grab the reins of power in dictatorships are just the kind of people who like to engage in a spot of expansionary warfare. Although recent governments of the UK have not been blameless in that regard, the ill-advised follies of the Blair government do not compare to the enormous global ambitions of 19th and 20th century empires. A new fascist wave could mean a new era of overwhelming warfare. If you’re up for investing in despotism, then arms and security firms are likely to be a great play.

Thirdly, globalisation will rapidly unwind. As we mentioned yesterday, the first decades of the 20th century saw the rapid collapse of a previous era of global trade – with reductions of more than fivefold. Investing in the apparatus of global trade, for so long a sure-fire winner, is likely to become a new losing strategy. Travel, logistics and financial services sectors will all likely face grim times.

We can only hope that we don’t see another Napoleon or Hitler in the 21st century. But, quite frankly, I would be cautious about placing my money on any bet that relies on democracy sticking around. Even the UK’s long-standing parliamentary system may not be immune to the consequences of internal societal collapse, or to external aggression by a modern-day Napoleon.

I’ll finish with one of my favourite quotes:

Fascism arrives as your friend.

It will restore your honour,

make you feel proud,

protect your house,

give you a job,

clean up the neighbourhood,

remind you of how great you once were,

clear out the venal and the corrupt,

remove anything you feel is unlike you…

It doesn’t walk in saying,

“Our programme means militias, mass imprisonments, transportations, war and persecution.”

– Michael Rosen

Do you welcome our new racist, xenophobic, warmongering, kleptocratic overlords? Perhaps you see them as the strong leaders we’ve always needed. Please let us know your views in the comments below.

Best,

Andrew Lockley
Exponential Investor

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