Psychology, not economics, is the key if we leave the EU

Poland is the only European country to avoid a recession during the financial crisis of 2007-2009. Polish GDP is 36 per cent higher than it was in 2005. To put this in context, the comparable figures for the UK and Germany are 5 and 12 respectively. The Polish economy has been a stunning success by any standards.

A key feature was the very rapid way in which Poland adapted to the shock of the collapse of the Soviet bloc. The era of the planned economy, which had existed for 40 years, was suddenly over.  The initial impact was a very sharp fall in output, of at least 15 per cent between 1989 and 1991. By 1995, this drop had been eliminated. By 2000, GDP was over 30 per cent higher than it had been in 1989.

Economies can not only survive dramatic shocks, but can clearly use them to their advantage and prosper. Are there lessons here for the UK, at a time when the prospect of leaving the EU has become more than a remote possibility?  Why was it that Poland was able to bounce back so strongly? Russia, the heart of the old Soviet Union, proved completely unable to respond to the frightening new world of markets and competition, and by 1996 output had fallen by over 40 per cent compared to 1989.

Both these economies had very similar legacies of heavy industry and a large, unproductive peasant sector of the economy. Both – at least Communism was good for this – had substantial numbers of well educated young people, especially in technical subjects. One was resilient in the face of a shock, the other was not.

At a meeting in Warsaw earlier this week, Andrzej Nowak of Warsaw University presented a fascinating, non-economic explanation for Polish success and the resilience exhibited after the collapse of the planned economy. Nowak, a psychology professor, argued that narratives provide the structure by which people understand the world.  The Poles created a positive narrative. They constructed a social reality which enabled them to innovate and to overcome the massive economic shock which had hit them

Economists find it very hard to explain how people can take decisions in conditions of genuine uncertainty such as this, when there is little or no idea of the probability with which different outcomes might occur. The past ceases to be a guide to the future. Uncertainty could simply lead to paralysis, to a complete inability to make any sort of decision. Instead, people can construct positive narratives, stories which give them the confidence to act. The Poles acted, the Russians were paralysed.

If the UK were to leave the EU, we would face a similar issue. Conventional economic policies would not be irrelevant, but much more would depend on the national psyche, the narrative which we built. One response would be to cower in a security blanket. The other would be to embrace the challenge, and to orient ourselves firmly to the more dynamic parts of the world economy.

Paul Ormerod

As published in City AM on Wednesday 15th January 2014

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Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

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Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.