Brexit, Financialization, Hardship and UK Growth

The United Kingdom (UK) joined the European Union (EU) in 1973 and left in 2020. From the standpoint of Macro-Systems analysis (rather than Political Philosophy): (1) What were material economic conditions during the 1973-2020 EU period and (2) What would have happened if Britain had stayed in the EU (the primary counterfactual). In this post, I'm going to approach these two questions in terms of Hardship, Financialization and Overall Growth of the UK Economy as measured by indexes created using data from the World Development Indicators.

From the time plots above, during the EU Membership period (1972-2020) Hardship (HARD1) increased, Financialization (FINZ1)  increased and Overall Economic Growth (UK1) increased. Had Britain not left the EU, Hardship would have been reduced below 1960 levels, Financialization would have peaked in 2030 and declined afterward and the a Steady-State Economy would have been reached around 2030.

In other words, Britain gave up on the EU Project before the benefits would have been realized, although there would have been intense debate about the benefits of a Steady-State Economy. 

The next question is what will the future look like for the UK without the EU? We can't know the future, but let us assume that Great Britain does nothing different** once it has left the EU. The graphic above forecasts the UKL20 EU Input model eliminating the input from the G matrix (see below). In this forecast, Hardship (HARD1) dips to lower levels, Financialization (FINZ) drops more quickly and  there is a very mild collapse from peak growth (UK1) in 2025.

In either case, Brexit will neither stimulate unlimited exponential growth nor unmitigated disaster. The looming Steady-State Economy will be interpreted as Economic Stagnation and blamed on the political party in power at the time. 

The Notes below explains how this Counterfactual Conclusion was reached.

Notes

** The are many suggestions from the New Labor Government about how things could be done differently in Great Britain, but onep ossibility is that nothing other than leaving the EU will change.

Shefner et al. (2015) Austerity and Anti-Systemic Protest: Bringing Hardships Back In

Hardship Measurement Model (HARD)

Where data was available in the World Development Indicators (WDI), the variables above were used to construct three independent components that explain 97.7% of the variation in the indicators.

The first component, HARD1, explained 75% of the variation and was a relatively equal weighting of all the indicators. The second independent component, HARD2, explaining about 20% of the variation, was a, Inequality-Male Mortality-Unemployment, Household Expenditure-Unemployment historical controller. The third independent component, HARD3, was a Family Work-Inequality-Male Mortality historical controller that explained 3% of the remaining variation for a total of 97.7% of the variance explained using Principal Components Analysis (PCA).

From the time plots, all the components were stabilizing by 2014.

Financialization Measurement Model (FINZ)

Financialization (or financialisation in British English) is a term sometimes used to describe the development of financial capitalism during the period from 1980 to the present, in which debt-to-equity ratios increased and financial services accounted for an increasing share of national income relative to other sectors.

UKL20 Measurement Model

EUL20 Measurement Model

EUL20 TECHP Model

UKL20 EU Input

 

Scaling Back Authoritarianism in China

May 19, 2026 China wants A.I. to Flourish but not at the expense of Jobs.

After the 2026 State Visit by Donald Trump to China, Xi announced a new Constructive Stability Strategy to prevent SuperPower confrontations.

We can debate (with experts) what this might actually mean, but let's assume that China has adopted the precise definition of Stability used in Systems Theory (see the Notes below).

The graphic above presents two future forecasts for CN1, the first state variable component of the CNL20 model. The upper graph shows the time path of the unstable system: Exponential growth forever. The lower graph shows the time path for the stabilized system: Steady State after 2152--a long time in the future. 

The graphic makes the point that growth in China can continue well into the future under a stable, less Authoritarian Economic System. 

The next question is: How much effort would it take to stabilize the system? The answer is that a relatively small change in growth rates would put the Economy of China on a stable growth path. Compare the "unstable" system matrix (F) in the Notes below to the "stable" System Matrix. The diagonal elements of F (the growth rates) have been lowered only slightly to create a stable system. And notice that CN2, the Malthusian-Unemployment controller  is still quite reactive (above unity). In other words, the Authoritarian System can still keep a tight control on Unemployment and stabilize overall growth.

China can evolve into a stable system without practical limits on the overall Growth rate of the System!

If this is what the Constructive Stability Strategy actually means, it is quite doable. A similar stability program could be applied to the US_LM model** but the results would be very different, creating a wildly cyclical system. For this (and many other reasons) I would not expect the US to cooperate in Constructive Stability Strategy regime.

Notes

System Stability is determined by the Eigenvalues of the System Matrix, F.

** Instructions for stabilizing the US_LM model are contained in R-code on the Google Site. Also notice that the  US_LM model is not a Malthusian model; control of employment involves the Export Market. But, there are Malthusian overtones (see the US_LM Measurement model below). Similar instructions are available for the CN_LM model and are available in the Google site (here).

For more posts see Blog Roll: China.

CNL20 Measurement Model

Three component state variables explain 99.4% of the variation in the indicators: CN1 = (Growth - LU) is an historical growth controller, meaning that growth is directly controlled in an Authoritarian economy, compared to the USL20W model where overall growth does not have an historical controller. CN2 = (LU - L) is a Malthusian-Unemployment Controller. CN3 = (KOF-E) is a Globalization-Unemployment-Energy controller.

Indicators are taken from the World Development Indicators, KOF is the KOF Globalization Index, EF is the Ecological Footprint and HDI is the Human Development Index (notice that the HDI is not heavily weighted in any of the state variables). The Measurement Model and resulting Historical Controllers are statistically estimated from data using Principal Component Analysis.

CNL20 Unstable System Matrix

The Malthusian-Unemployment Controller CN2 = (LU - L) is the main source of system instability.

CNL20 Stable System Matrix

The system is stabilized by slightly reducing the values of all diagonal elements in F (the growth rates). 

US_LM Measurement Matrix

The US_LM Model Measurement Matrix contains three component state variables: US1 = (Overall Growth), US2 = (X+XREAL-N-L) Export-Population Controller and US3 = (L + XREAL - X- N) Employment-Export-Population Controller. US2 and US3 have Malthusian overtones since Population (N) is involved in each historical controller. Notice that the US_LM Model is not an Authoritarian System because growth does not have an historical controller (as it does in the  CN_LM model).

You can run the US_LM Model on my Google Site (here). Instructions in the R-code explain how to stabilize the model.

 

Has Human Development Stagnated?

 

The 2025 UN Human Development Report notes that the Human Development Index (HDI) has been stagnating for most countries in the World-System. A forecast from the WL20 Model (above) makes the same prediction with narrow 98% Prediction Intervals. This post presents my own version of the HDI index and suggests that a Steady State may not be the best forecast for the future.

The Human Development Index is likely to be driven, in the future, by the World System which is currently in Growth-and-Collapse model.

Stagnation-and-collapse will not be a believable forecasts for optimistic commentators, but it is hard to see how Human Development will stabilize if the World System is in collapse mode. 

First, let me discuss how my version of the HDI (WL20_HDI) was constructed. I felt it was necessary to recreate the index and address criticism of the UN's methodology. One general criticism is that the HDI has not be located globally within the World-System (I do that in this post). From Wikipedia (here):

There have also been various criticism towards the lack of consideration regarding sustainability (later addressed by the planetary pressures-adjusted HDI), social inequality (addressed by the inequality-adjusted HDI), unemployment or democracy).

The removal of literacy from HDI has been criticized because educational attainment evaluates only the quantity of education but not the quality or the outcomes of education and can result in perverse incentives.

The indicators I have chosen to reconstruct the index (see Codes below) address some of these criticisms. From a comparison of WL20_HDI to the UN HDI (see below) both indexes show similar time paths over the Long Twentieth Century, although the UNDP does not not fit a model that can account for the approaching Steady State.

So, yes the HDI has stagnated or reached a steady state. On the other hand, the best model for the HDI is a Random Walk which suggests that future predictions are not certain and collapse is possible.

COMMENT: The intent of the UN HDI was to switch the focus from GDP, as a measure of progress, to "Human" measures of progress. From the standpoint of Systems Theory, however, neither is adequate without a measure of System State. And, what is interesting about the WL20_HD, currently, is that the State of the WL20 Model is not the best predictor. 

Notes

From Wikipedia:

The Human Development Index (HDI) is a statistical composite index of life expectancy, education (mean years of schooling completed and expected years of schooling upon entering the education system), and per capita income indicators, which is used to rank countries into four tiers of human development. 

 

Country Distribution of the HDI Index

The highest level of HDI is in Norway while the lowest is in Niger.  The World System is right in the middle while the US is in the top of the distribution (but has been loosing ground over the Long Twentieth Century). Notice that the UN HDI index is highly correlated with my HDI index and also appears to be reaching a steady state.

WL20 HDI Measurement Model

Two components of my constructed HDI index (constructed with Principal Components)  explain 99.8% of the variation in the indicators. HDI1 is a measure of overall growth in the indicators. HD2 is an historical controller balancing Life Expectancy against growth in the other indicators.

The WL20 HDI Index is largely unidimensional with the second component (HD2) acting as an historical controller before 1980 but not afterward (time plot above).

WL20 HDI Codes

The definition of codes in my WL20 HDI index is presented above.

WL20 HDI BAU Model

The WL20_HDI BAU model is stable and, from the graphic at the beginning of the article, reaches a steady state around 2100. The growth rate for my HDI index has been slowing since after 2000.

WL20 HDI Model AIC Statistics

From the Akaike Information Criterion (AIC) alone, the WL20_HDI Index is best seen as a Random Walk, meaning that in the future, anything can happen.

Since the Growth Component (W1) of the WL20 Model is expected to peak before 2050, the World System is predicted to be in growth-and-collapse mode.  Even though the  World System is not the best predictor of the HDI Index, that could change in the future.

Video

Why MAGA Geopolitics?

Apr 21, 2026 From the perspective of Europe, the current US Decline is larger than just the Trump Administration (video above).

Is there any sense to the Trump Administration's Geopolitical actions: Insulting Allies, threatening to Invade Greenland, capturing the president of Venezuela, joining Israel to wage war against Iran, threatening to bomb Iran back to the Stone Age, blockading the Straight of Hormuz, etc., etc.? Certainly there are lots of reasons at different levels of analysis,*** but what about the World-System level of analysis?

My argument is that the MAGA movement is a response to the Decline of American hegemonic power in the World-System.

In this post, I'm going to explore the US Decline hypothesis.

The graphic above shows a growth forecast (US1 with prediction intervals)** from the USL20 Model driven by World System Input (W-Input). The model predicts growth-and-collapse, with collapse starting around 2060 (attractor path growth rates have been declining since around 2010).

On the other hand, the graphic above shows a growth forecast (US1 with prediction intervals) from the USL20 Model BAU model. I interpret the Business-as-Usual (BAU) model as the System Theoretic implementation of the MAGA geopolitical agenda ("Go It Alone" with no input from other countries, regions or the World System). Notice first that the prediction intervals are much, much wider than the W-Input model. There is still a small probability of hegemonic collapse (the lower 98% prediction interval). In other words, the MAGA vision is exponential growth forever with only a slight chance, if any, for collapse. Given the width of the  USL20 Model BAU model prediction intervals, however, it is a very risky strategy. Donald Trump, at least, is someone who demonstrates a very high tolerance (if not complete disdain) for risk.

You can run the various USL20 Models on my Google Drive. For more information about the US and World Systems models see Blog Roll the United States and Blog Roll:The World System.

Notes

** US1 is an equal weighting of all the indicators variables defining the US State Space and created using Principal Components Analysis (PCA)--see the Boiler Plate and below. The system state is defined as "the minimal collection of independent variables (the principal components) that explain the state variable indicators (the measurement model) and the future path of the system (the state space model)".

*** Trump's declining mental health, a strong strain of stupidity in American politics, a new stage of Crony Capitalism, the extremist coalition that shapes Right-Wing politics in the US, etc. etc.

USL20 Measurement Model

The first component, US1 = (Overall Growth) explains 69.8% of the variation in the indicators. Data were taken from the US Historical Statistics and other sources (EF = Ecological Footprint and Globalization = KOF Globalization Index).

WL20 Measurement Model

The first component, W1 = (Overall Growth) explains 87.4% of the variation in the indicators. Data were taken from the World Development Indicators and other sources (TEMP = Global Temperature, Total Footprint and Earths = Ecological Footprint, WorldGlobal = KOF Globalization Index, and LivingPlanet = Living Planet Index).

US1 W-Input State Space System

The System Model is stabilized by World System input.

US1 BAU State Space System

The BAU model is unstable.

ChatGPT

Italian Debt Crisis? The Sick Man of Europe?

 

Notes

Debt Index Codes

The US vs. Iran: What Are the Options?

The video above, from PBS News, covers the alternative scenarios the current US-Iran War. They missed one Scenario. Can you guess what it is? 

In this post, I'll summarize the video and then identify the missing scenario that I have covered in another post. Summary:

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Nuclear War Simulation: Israel vs. Iran

Among many confusing justifications for the US attacking Iran is the threat of Nuclear War. President Trump has made it repeatedly clear that "Iran Cannot Have a Nuclear Weapon". This rationale for War is based on the assumption that the US has some fundamental interest in a Middle East War. Aside from the disruption of Oil Supplies (which is already happening as a result of War), what would be the consequences for the US of a Nuclear War in the Middle East? This post explores that question.

The computer simulation in the video above maps out what might happen in the Middle East.