Posts Tagged ‘Featured’

Remainer or Leaver? The emergence of the Brexit identity prism

ian montaguBritons used to identify as supporters of a political party. Now they are more likely to identify themselves as a ‘Remainer’ or a ‘Leaver’. Ian Montagu (ScotCen) looks at the challenges this new political divide presents as Britain prepares to leave the EU.

The past half-century has seen a more or less continuous decline in the number of voters who say that they identify with a political party. While this development has meant that the choices made by many voters may now be more likely to reflect their policy preferences, it has also been seen as resulting in an electorate that is more difficult to motivate to turn out and vote in the first place.

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Photo: Ros Taylor

In the wake of Brexit, however, it appears that new political identities may have emerged. Sara Hobolt has argued that voters have developed a sense of emotional attachment with being a ‘Remainer’ or a ‘Leaver’, and that these identities have in turn become a prism through which the Brexit debate is interpreted.

New research undertaken using NatCen’s mixed-mode random probability panel supports this claim. Brexit identities are now much more prevalent than traditional party identities – while 31% of people don’t think of themselves as a supporter of a political party, only 11% don’t think of themselves as a ‘Remainer’ or a ‘Leaver’. Even more tellingly, 44% say that they are a ‘very strong’ Remainer or Leaver, while only 9% say they identify ‘very strongly’ with a political party.

This development might go some way to explaining why, as the WhatUKThinks Poll of Polls illustrates, support for both Remain and Leave has been so stable during the Brexit negotiations. Those with strong Brexit identities are particularly unlikely to change their minds about the merits of their decision in 2016 – 99% of ‘very strong’ and 94% of ‘fairly strong’ Remainers report that they would vote the same way again, as do 98% of ‘very strong’ and 94% of ‘fairly strong’ Leavers.

Those with a strong Brexit identity often have distinctive views about some of the key issues in the debate about Britain’s future relationship with the EU. For example, while requiring migrants from the EU to apply to come to Britain in the same way as those from outside the EU is relatively popular among Remainers as well as Leavers, a far lower proportion of those who identify ‘very strongly’ with Remain are in favour of this idea.

This pattern is echoed in voters’ attitudes to whether or not Britain should allow freedom of movement for EU citizens in return for the continuation of free trade with the EU. While most Remainers are divided between those who think that Britain ‘probably should’ be willing to strike such a deal and those who believe that it ‘probably should not’, a relatively high proportion of ‘very strong’ Remainers (62%) believe that Britain ‘definitely should’ allow free movement in return for free trade. Similarly, while 18% of ‘not very strong’ Leavers believe that Britain ‘definitely should not’ allow free movement in return for free trade, at 41% the proportion of ‘very strong’ Leavers who feel that Britain ‘definitely should not’ strike such a deal is more than twice this size.

Those with a strong Brexit identity also make a different assessment of how likely or unlikely it is that Britain will emerge with a good deal from the EU – those who identify ‘very strongly’ with Remain are most likely to think that Britain will emerge with a bad deal, while ‘very strong’ Leavers are most likely to believe that Britain will negotiate a good deal.

Finally, the strength of voters’ Brexit identity is reflected in who they believe is to blame for the prospect of a bad deal, with ‘very strong’ Remainers particularly likely to feel that the UK government has been handling the talks badly and ‘very strong’ Leavers especially critical of the EU. Both groups are seemingly attributing blame in a way that reinforces their existing views, with Leavers inclined to blame the EU because they dislike the institution itself while Remainers lay the fault at the door of the UK government because they disagree with its attempt to leave the EU in the first place.

The emergence of these new identities over the past two years may have a positive impact upon levels of turnout – those with a strong Brexit identity were more likely to have voted in both the EU referendum (86%) and in the subsequent 2017 General Election (87%) than those with no sense of Brexit identity (50% and 51% respectively). However, the prevalence and strength of Remain and Leave as new political identities illustrates just how deep the Brexit chasm now runs – and how much of a challenge it may prove to bridge it.

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Ian Montagu is a Senior Researcher at the Scottish Centre for Social Research (ScotCen).

Moving Farther Away: Why distance matters on the decision to remain in the EU

The Brexit vote was a challenge to Scotland’s regional autonomy. The country’s response has been to work toward removing itself from the source of its policy preference variation with Great Britain, writes Ryan Lux (University of Texas at Dallas). He argues that this can be explained by physical distance from the political centre, which is London. Both Northern Ireland and Scotland voted to remain in the EU while Wales and England steered toward a break from the institution, he concludes.

In international relations, it is commonplace to analyze the actions of a country by viewing that country as a singular actor. However, we know that multiple groups exist within any country that make up the national preferences. This issue is compounded when the government of a state has subnational governments underneath as the United Kingdom does. In recent interviews regarding the British withdrawal from the European Union, Scotland’s First Minister Nicola Sturgeon has argued for another Scottish independence referendum. In the 2016 Brexit vote, Scotland voted overwhelmingly in favour of remaining in the EU. We know that citizens increasingly desire regional control, yet at the same time, they also want the national policy to reflect their values. Scotland has clearly lobbied for increased regional autonomy over recent years, and been somewhat successful in this area. When an issue occurred that challenged this regional autonomy, the Brexit referendum, the Scottish response has been to work toward removing itself from the source of its policy preference variation with Great Britain.

Interestingly, the Welsh vote on Brexit was in line with the British vote. Figures 1 and 2 illustrate the vote percentage of each country for joining the European Community in 1975 and remain the EU in 2016 respectively. Both Scotland and Wales have sought increased regional control, yet clearly, they have different policy preferences. So then how can we reconcile these differing situations? Political parties are attributed as contributing to the desire for regional control, as evidenced by the dominance of the UKIP party during the Brexit vote. However, this potential explanation fails to account for another potential determinant, distance. Physical distance from the political center, London, may also have played a role, with both Northern Ireland and Scotland voting to remain in the EU while Wales and England steered toward a break from the institution.

Figure 1

Figure 2

Further complicating the puzzle is the upward directional pull on the UK by the European Union. Granting authority to lower government levels presents a set of challenges for the UK as a whole, while simultaneously dealing with the EU overhead. It would seem that power, or more aptly stated, authority, is being pulled from the British centre in both directions. A natural competition for political power exists, giving an environment in which savvy political parties can play to their voters in many directions.

Party elites drive voter preferences, a fact that is exacerbated as polarization increases. Party leaders use an “us versus them” mentality to frame public opinion. While the central government is the deciding factor in many aspects of foreign affairs, the subnational governments also play a major role. Subnational elite leaders matter in framing the arguments and can either increase or decrease the level of polarization.  If we make the analogy to running a firm, centrality is important to the exercise of power. Within an organisation, firms that are closer in proximity to the company’s headquarters exhibit signs of increased control by the governing board. In a similar vein, a region that lies in close physical proximity to the central government unit is subject to the increased exercise of control over that region. Then, as physical distance from the political centre increases, this effect should diminish. This would provide greater latitude and leverage in framing public opinion for the subnational leaders of regions farther from the centre.

Public Domain Mark 1.0

The British Election Study conducted survey interviews between February 2014 and June 2017. Respondents were asked, “If there was a referendum on Britain’s membership of the European Union, how do you think you would vote?” Options were vote to leave, vote to stay, or refuse to vote. These surveys provide insight to voter’s decisions on the Brexit vote both before and after the actual vote occurred.  These responses are examined with regards to the country from which the respondent comes including a calculation, in miles, of the distance between their political centres. Additionally, respondent’s left-right ideology is examined to determine party influence. Euroscepticism is also added as another potential indicator.

Figure 3 shows that as the distance from London increases, the likelihood of voting to in favour of Brexit decreases when taking into account partisan affiliation. Figure 4 shows similar results, as the likelihood to vote “Leave” decreases the farther a region is from London. Indeed, Euroscepticism has a much higher effect on voting decisions than left-right ideology. Wales and Scotland each exhibit a lesser likelihood of voting to leave across both indicators, although the results remain positive. The effect does not revert entirely to the alternative of voting to remain in the EU. However, the effect is clearly diminished as physical distance increases.

Figure 3

Figure 4

A clear correlation exists between partisanship and the decision within the UK to leave the European Union. This effect is evident as well in regard to Eurosceptic positioning. This relationship also exhibits effects in light of the region’s physical proximity to London. The effect of ideology and Euroscepticism are weaker in Wales than in London, while Scotland shows even weaker effects. Clearly, England exerts more control over Welsh politics than it can Scottish politics, in large part due to physical closeness.

An additional avenue for future research is to collect data regarding Northern Ireland and its citizens’ views on Brexit. Northern Ireland respondents are specifically excluded from the BES survey, which the authors note is due to political circumstances in the country. However, the varying political circumstances are what help to understand the effects of region on policy preferences. The preferences portrayed by Northern Ireland’s respondents, as is the case in Wales and Scotland, are inextricably linked to the political climate within the area. Thus, the Northern Ireland vote to remain in the European Union should not be eliminated from any analysis regarding Brexit.

This post represents the views of the author and neither those of the LSE Brexit blog nor of the LSE.

Ryan Lux is a PhD Candidate at the University of Texas at Dallas.

Campaigning online and offline: the significance of local and national contexts.

Paul Webb addresses the question of what members do for their parties during campaigns, and explains why there is value in considering the impact of national and local political contexts. He writes that whereas the former enhances online participation by party members, the latter considerably improves the model of offline participation.

When it comes to election campaigning, boots on the ground can sometimes beat – or at least, mitigate the effect of – cash in the bank. It is very likely that Labour’s huge advantage over the Tories in terms of membership would have counted for something in close constituency races in the general election of 2017 – as long as a decent proportion of those members are actually active. These are the sort of people who will volunteer for phone banks, deliver leaflets, and canvass door-to-door in the run-up to the election, and then remind people to vote and help them get to the polling stations on polling day itself. But in this day and age, it isn’t just a matter of these perennial methods of campaigning, but increasingly too about exploiting the potential of social media to spread party and candidate messages. With evidence that Labour enjoyed a particular advantage over their main rivals in terms of social media strategy in 2107, it is important to know what drives online campaigning by activists, and whether the answer differs from that for offline campaigning.

We can shed light on this, thanks to the detailed surveys of the members of six British parties we have conducted since 2015 as part of the ESRC-funded Party Membership Project run out of Queen Mary University of London and Sussex University. Table 1 reports the range and scale of activities of our respondents during the election campaign. In terms of inter-party differences, this shows that SNP members were the most active overall, while Conservative members trailed behind the others. Social media acts (posting on Facebook or tweeting) feature among the most prominent forms of campaign activity, while things that generally require more effort or time, like running party committees and getting the vote out on polling day, attracted far few participants – unsurprisingly. But do the same factors drive members to participate online and offline? Not exactly.

Our results suggest some significant differences between offline and online campaign participation. The details of our statistical modelling can be found in this article, but the major findings are fairly easy to summarize. We found that factors relating to the local party and constituency context are especially helpful in understanding the drivers of traditional offline activism, but are less pertinent to online activity. If an individual is recruited by his or her local party, becomes embedded within its social network, forms a positive impression of the way it conducts its business and feels comfortable with its general ideological outlook, he or she will be significantly more likely to campaign for it at election time than if one or more of these conditions do not apply – all the more so if this all happens to occur in a marginal constituency, and if he or she is a member of one of the major two parties. However, these local contextual factors do not carry the same significance for online participation, which is driven more exclusively by factors associated with the national party and its leadership (i.e. its general policy positions and leader images).

A point of particular interest is that members who are recruited via the local rather than the national party are more likely to participate in traditional offline forms of campaign activity, but less likely to engage in social media ‘clicktivism’. While online activism is undeniably significant now, offline campaigning is by no means a thing of the past – and our research suggests that if parties want members to get involved in such activities, then they need to think very carefully before rushing into making recruitment and participation more national and more digital. At the heart of this is the process of welcoming and inducting new recruits without intimidating them or turning them off: it is vital that members feel that they are part of a sympathetic social network of like-minded people whose company they enjoy if they are to commit themselves to a party’s cause in a national election campaign. In this regard, for instance, anecdotal reports that Constituency Labour Party meetings are becoming increasingly fraught (and sometimes downright bloody) affairs should therefore be a cause for concern.

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Note: the above draws on the author’s paper (with Tim Bale and Monica Poletti) in Political Studies.

About the Author

Paul Webb is Professor of Politics at the University of Sussex.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay, Public Domain.

The effect on foreign multinationals: an under-explored aspect of Brexit

maria latorreWhile most of the studies on Brexit have focused on its trade effects, very few have analysed the likely impact on foreign multinationals. Claudia Fernández-Pacheco Theurer (Universidad Autonoma de Madrid), Jose Luis López Ruiz and María C. Latorre (Universidad Complutense de Madrid, left) argue that this is an important omission. They show how data on trade and foreign multinationals affiliates’ sales underlines the different relationship between the UK and EU-27 on both fronts. They go on to explain the EU trade and investment regulatory regimes and analyse a few studies of Brexit, including its effect on multinationals.

Data on trade and foreign multinationals’ affiliates

Trade relationships between the UK and the EU-27 are much stronger than the ties created by their foreign affiliates’ sales. The EU-27 accounts for 53.1% and 44.5% of total UK’s imports and exports, respectively, in 2017. By contrast, the EU-27 accounts for 36.6% of total foreign affiliate sales in the UK (12.8% of total sales within the UK), while the UK’s foreign affiliate sales in the EU-27 account for 25% of total UK’s foreign affiliate sales abroad in 2015. This has been a common trend in the last years (Figures 1 and 2).

Figure 1. UK’s exports to the EU-27 over total UK’s exports and UK’s foreign affiliate sales in the EU-27 over total UK’s foreign affiliate abroad (in percentages)

Source: Updated from Fernández-Pacheco et al. (2018) © Emerald

Figure 1 shows that the EU-27 has lost importance as an investment destination for the UK, although the shares (around 25%) in 2014 and 2015 are still considerable. By contrast, the EU-27 is crucial for the UK’s exports, which are always well beyond 40%. Note that the UK’s foreign affiliate sales and the UK’s exports represent two different forms of provision of UK products in foreign markets.

Figure 2. UK’s imports from the EU-27 over total UK’s imports and EU-27’s foreign affiliate sales in UK over total foreign affiliate sales in the UK (in percentages)

Source: Updated from Fernández-Pacheco et al. (2018) © Emerald

In Figure 2 we see the share in the UK’s imports from the EU-27 has been much larger than the share of EU-27’s foreign affiliate sales in total foreign affiliates operating in the UK since 2008. However, it is important to note that the operations of foreign affiliates in the UK are of great relevance.

Figure 3 makes clear that the share of total (EU-27 and non-EU-27) foreign affiliates in UK stands out with 37.4%, compared to other large economies, such as Germany (22.7 per cent), Spain (27.2%), France (20.4%) or Italy (18.1%) and also compared to the average of the EU-28 (28.6%) in 2014.

Fernández-Pacheco et al. (2018) show the shares of the top 15 UK trade and investment partners, of which the US is the main one in investment, apart from a key trade partner. The US is the first destination of the UK’s exports (18.2% in 2014) and second main importing source (with 11.9% of total UK imports following Germany, which accounts for 13.5% of them, in 2014). The US accounts for 30.3% of total UK foreign affiliates abroad and 26.5% of total foreign affiliates within the UK (in 2014).

Figure 3. Shares of national firms and foreign affiliates in total sales by EU country (%)

Source: Fernández-Pacheco et al. (2018) © Emerald

The EU foreign trade and investment legislative regime

While foreign trade policies have, since the Treaty of Rome (1957), been the exclusive competence of the European Commission, investment policies with third countries have been completely in the hands of EU sovereign states. However, after the entry into force of the 2009 Lisbon Treaty, foreign investment policies will also be transferred to the European Commission. The implementation of this new regime will take some time and its exact scope and content still remains a controversial issue (Fernández-Pacheco et al., 2018). But it seems that the UK will be able to continue its investment policies as it wishes, contrary to the situation in other EU member states. Nevertheless, the UK’s leveraging power will be reduced outside the EU.

In the past, EU members regulated their investment with third countries through the so called Bilateral Investment Treaties (BITs). The UK has signed over 1000 BITs since 1975. What is going to happen to them after Brexit? In principle, they will remain valid (Molinonuevo, 2017). As the UK negotiated and signed them in its own capacity and independently of the EU, Britain’s separation from the EU should not necessarily have any direct legal effect on these treaties. However, Brexit will mean that the UK-based firms, including foreign-owned firms, will no longer benefit from the UK’s access to the EU single market, which has the tiniest possible barriers between different countries to exist globally. Thus, third countries may seek some form of compensation. What is more, amendments to BITs would be possible even if those treaties do not expressly address this possibility by invoking the rebus sic stantibus doctrine of international law, which allows for a termination of an international agreement because of a fundamental change of circumstances (Molinonuevo, 2017).

Brexit studies including multinationals

In Fernández-Pacheco et al. (2018) we explain in depth why modelling foreign investment is challenging, and  the problems with the data. Given these difficulties, we should be prudent regarding the effects on multinationals after Brexit. However, a few studies suggest it is hard to overcome the negative impact of trade with multinationals’ operations. Latorre et al. (2018a) calculate the emergence of barriers to foreign affiliate sales in services sectors would account for one third of the overall negative impact of Brexit, with the remaining negative two thirds being explained by trade. To be more specific, in Latorre et al. (2018a) a hard (soft) Brexit would lead to a total decrease in UK’s GDP of -2.53% (-1.23%), while the foreign affiliates’ component alone would cause a reduction of -0.83% (-0.41%). By contrast, Ciuriak et al., (2015, Table 2, p. 14) obtain a negligible impact from multinationals effects after Brexit, although Brexit will continue to be quite harmful for the UK. According to Latorre et al. (2018b) a UK-US deep trade and FDI agreement would be far from compensating the harmful effects of Brexit. They further explore potential agreements with China, Japan and India and find their effects to be positive but very small. Latorre et al. (2018c) have also explored in more detail the potential expansion of UK investments in China and find its impact will be very limited. Finally, Latorre et al. (2018d) explore in more detail the impact of foreign multinationals operating in services sectors in UK after Brexit. They find that the barriers to investment rise the price of services and also reduce production not only in services but also in manufacturing. This latter effect may be surprising – since the barriers to investment affect only the service sector directly – but nonetheless manufacturing production is also harmed across the board because services provide important intermediates for manufacturing sectors.

Conclusions

For the UK, the EU is a much less important partner for investment than it is for trade. The implementation of the 2009 Lisbon Treaty implies that in the future the UK will be able to continue with its own investment policies after Brexit, contrary to other EU member states that will share a common investment regime similar to the EU’s common commercial policy. However, UK’s negotiation leverage will be reduced compared to when it was as a member of the EU. Although modelling economy-wide impact of multinationals’ affiliates and investment is challenging and there are difficulties with the data, a few studies suggest that their effect will not be able to compensate for the sizeable negative impact of trade after Brexit – and will even exacerbate its harmful impact.

References

Ciuriak, D., Xiao, J., Ciuriak, N., Dadkhah, A., Lysenko, D. and Narayanan G. B. (2015) “The trade-related impact of a UK exit from the EU single market”, Ciuriak Consulting, April.

Fernández-Pacheco, C., Lopez, J.L. and Latorre, M.C. (2018) “Multinationals’ effects: A nearly unexplored aspect of Brexit”, Journal of International Trade Law and Policy, vol. 17, issue: 1/2, pp.2-18.

Latorre, M.C. Olekseyuk, Z. and Yonezawa, H. (2018a) “Trade and FDI-related impacts of Brexit”, ssrn working paper, April 25.

Latorre, M.C. Olekseyuk, Z. and Yonezawa, H. (2018b) “Can Brexit be overturned by other Trade and FDI agreements?”, Paper presented at the 21th Annual Conference on Global Economic Analysis, Cartagena de Indias, Colombia, June 13-15.

Latorre, M.C., Yonezawa, H. and Zhou, J. (2018c) “A general equilibrium analysis of FDI growth in Chinese services’ sectors”, China Economic Review, vol. 47, pp. 172-188.

Latorre, M.C. Olekseyuk, Z. and Yonezawa, H. (2018d) “On the nature of foreign multinationals in services sectors: A general equilibrium analysis applied to the impact of Brexit”, mimeo, available upon request.

Molinonuevo, M. (2017) “Brexit: Trade governance and legal implications for third countries”, Policy Research Working Paper No. 8010, Trade and Competitiveness Global Practice Group,
March.

This post represents the views of the authors and not those of the Brexit blog, nor the LSE. It relies heavily on Fernández-Pacheco et al. (2018).

Claudia Fernández-Pacheco Theurer is a researcher at Universidad Autonoma de Madrid.

Jose Luis López Ruiz is a researcher at Universidad Complutense de Madrid.

María C. Latorre is Assistant Professor at Universidad Complutense de Madrid (UCM) and Vice Dean for Research, Postgraduate Studies and International Affairs of the Faculty of Statistical Studies, UCM.

Long read: Global cities, multinationals, and trade in the age of Brexit

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This post is the third in a series analysing the prospects for trade and foreign direct investment (FDI) diversification, with a particular focus on the UK and Canada in the age of Brexit. Daniel Shapiro, Saul EstrinChristine Cote, Klaus Meyer, and Jing Li examine the nature of trade in services using ideas developed in the international business and economic geography literature to explore the interrelationships among multinational enterprises, global value chains and cities. 

Previous contributions (here and here) focused on trade in goods and services, concluding that distance still matters for trade in goods, but possibly less so for services, and that services, therefore, represent a more promising route to diversification. However, it has also been noted that trade in services is more complicated than trade in goods because the former typically involves movements of knowledge, people and capital. Trade in services is different because it involves a range of cross-border transaction including IT services, transportation services, tourism services, local offices providing banking, insurance, and communications services, and the short-run movement of service workers in these industries. At the same time, advances in digital technologies have served to expand the potential for trade and FDI in strategic business services including design, development and testing; education and training; sales and marketing; and R&D. 

The idea that developed economies like the UK and Canada should pursue diversification via trade in services is not new. For example, in a recent report, HSBC and Oxford Economics (HSBC, 2016) documented the potential for expanded trade in services. Nevertheless, as we discussed in a previous post, there are still doubts regarding the degree to which this is possible. In this post, we examine the nature of trade in services through a different lens. Using ideas developed in the international business and economic geography literatures, we explore the interrelationships among multinational enterprises (MNEs), global value chains (GVCs) and cities. We discuss in particular how global cities and MNEs are connected through changes in GVCs such that high value-added knowledge-based services and activities such as R&D, marketing and financial services tend to agglomerate in a relatively small number of global cities, and these cities, in turn, become both homes and hosts to MNEs. We focus on MNEs because it is well-known that the majority of global trade is orchestrated by MNEs, often through internal transfers of knowledge and services (Iammarino and McCann, 2013), and we focus on global cities because as we document below much of the international trade and investment in services originates in these cities. In essence, global cities help MNEs offset the costs of distance, particularly in knowledge-intensive activities, by providing location-specific advantages that match the firm-specific needs of MNEs.

Our analysis centres on MNEs and global cities. However, we emphasize that many of the factors that make a city attractive to MNEs, also contribute to an entrepreneurial culture that facilitates the growth of smaller domestic knowledge-based companies. These entrepreneurial companies also extensively engage in cross-border activities, a process hastened by the diffusion of digital technologies (Autio et al, 2018).

Image by kloniwotski(CC BY-SA 2.0).

Global Cities and Services

Both world population and economic activity are increasingly concentrated in major cities and these cities represent important trade hubs (Berube and Parilla, 2012). However, the importance of cities relative to the size of national economies varies across countries. As indicated in Figure 1, London accounts for some 28% of UK GDP, while Toronto and Montreal together account for about the same percentage of Canadian GDP. In both countries, there a number of other cities that account for important percentages of population and GDP (see Figure 2) but a large percentage of GDP is concentrated in a relatively small number of cities.

Perhaps not surprisingly, the largest cities attract significant amounts of FDI, most of it in services. For example, according to fDi Intelligence, a service of the Financial Times that collects data on greenfield FDI, from 2012-2017 London attracted far more foreign investments than any other EU city and the same number as the next three largest (Paris, Dublin, Berlin). The vast majority of these investments (over 80%) were in services, including software and IT services, business services and financial services. Similarly, New York was the primary recipient of projects in the Americas, but Toronto was ranked fourth. Similar to London, Toronto attracted the majority of FDI to Canada (about one-third), and over 70% of those investments were in services. It is also worth noting that Montreal increased its share of Canadian FDI from 6% to 13% over this period, largely because of an increase in investments from France, perhaps the result of the Canada-France Joint Action Plan for 2012-2013.

MNEs are the vehicles through which much of this trade and investment occurs. While it is difficult to isolate services, in its World Investment Report 2013, the United Nations Conference on Trade and Development (UNCTAD 2013) estimated that some 80% of international trade was being organized by lead MNEs investing in cross-border production and, then, trading with suppliers and customers worldwide. Thus trade and FDI are linked (Hoeckman, 2014). The World Bank (2017) suggests that some 30% (60%) of US exports (imports) occur through intra-firm trade. Moreover, a third of the world’s largest corporations are concentrated in only 20 major cities (McKinsey Global Institute, 2013), and this is expected to increase (KPMG, 2015). Our own calculations indicate that as of 2018, nearly half of the Fortune 500 largest companies were located in just 20 cities, including London, UK (14 headquarters, ranked 5th) and Toronto (7, ranked 9th).

Global Cities, Global Companies and Global Value Chains

A feature of the global economy is the unbundling of activities along the global value chain (GVC) such that different activities are performed in different locations and traded internationally (Gereffi and Fernandez-Stark, 2016; Fu, 2018; Timmer et al, 2014). Thus countries, and in the case of services and intangible goods, cities, tend to specialize in some specific segment of the GVC. The nature of the division of activities across countries is often summarized in the “Smile Curve” (Figure 3), which suggests that higher value-added activities associated with R&D, design and business support services tend to be located in developed countries, and as suggested above, in cities. Importantly, these investments are often undertaken by firms that are not in the service industries. One estimate suggests that in 2011, 35% of foreign investment projects by large MNEs (including those not in service industries) were in support services, including marketing and sales, design, and R&D (Belderbos et al, 2016, Figure 3), up from 25% in 2003. These investments include units with coordination functions such as divisional or regional headquarters (HQ), or holding companies – a type of subsidiary historically particularly attracted to London, UK because of its springboard position to European markets.

The link between the location of higher value-added activities and cities occurs because cities can minimize the spatial transaction costs related to trade in knowledge-based services (Cano-Kollmann et al., 2016). For example, large cities provide access to a wide variety of complementary services, larger pools of specialized labour, and a sophisticated transportation and communications infrastructure. Thus, one observes the emergence of interconnected global cities as providers of advanced knowledge-based services for the global economy (Sassen, 1991; 2012; Taylor and Derudder, 2016). Indeed, one prominent approach to measuring global cities (Beaverstock, et al, 1999) builds on Sassen to use data on the presence of advanced producer services (service MNEs in advertising, law, accounting, finance, insurance) as the basis for ranking cities. Another, and more recent version of the ranking is illustrated in Figure 4 (Taylor et al, 2009). This method allows cities to be ranked according to both the presence of service MNEs and the degree to which city pairs share the same set of firms. Global cities are therefore understood as key nodes in global knowledge and trade networks. In the example provided in Figure 4, 100 service providers are measured in 315 cities, which are then ranked and grouped into categories. The most global cities attract the greatest number of advanced service providers and are most connected to other such cities. It should be noted that alternative measures are available, for example AT Kearney’s list of Global Cities which uses an expanded set of criteria to rank cities. However, for our purposes, it is sufficient to note that both rank London and Toronto among the top 20 global cities, and this would be the case for most definitions. However, the definition of a global city varies from study to study, as will the number of ranked cities.

One important consequence of the unbundling of GVCs, is that R&D and other innovative activities associated with MNEs are increasingly dispersed around the world. However, the decisions regarding the location of these activities is frequently city, not country, based. For example, Samsung’s semiconductor business unit has R&D centres in 11 cities around the world. In a comprehensive analysis of the fDi data discussed above, Belderbos et al (2016) conclude that some 40% of inbound global cross-border R&D projects are directed towards 57 global cities (including London, Edinburgh, Toronto, Montreal and Vancouver), and 40% is accounted for by large MNEs. Importantly, the 57 global cities also account for about 40% of outbound R&D projects. Global cities are therefore both primary homes and hosts to knowledge-based investments in R&D and design, as well as other advanced business services. This suggests that cities should not be viewed only as providers of advanced business services, but also as critical elements in the creation and global diffusion of knowledge and that MNEs act as orchestrators and connectors of spatially dispersed knowledge sources (Cano-Kollmann et al. 2016).

Indeed, in the international business literature, the MNE is conceived as a global creator, organizer, and connector of knowledge networks across locations, rather than a simple vehicle for technology transfer between given locations (Beugelsdijk and Mudambi, 2013; Cantwell, 2017). Innovative and knowledge-based activities are therefore understood as a combination of firm- and location-specific advantages. Thus “the two processes of innovation and internationalization have become ever more interconnected as central drivers of development” (Cantwell, 2017: 41). In essence, the increased importance of knowledge-based activities to the MNE and the global sourcing of knowledge accompanying the emergence of global value chains have “linked localized innovation systems to international business and to international knowledge exchange” (Cantwell, 2017: 42). In other words, one function of the MNE is to exchange knowledge across locations.

The “localized innovation” referred suggests a sub-national location, which may be a global city, however defined, or it may be a specialized knowledge cluster within a global city, or it may be a city-region (a region anchored by a global city such as the “golden horseshoe” in the Toronto area). The point is, however, that global cities both attract and create knowledge. As a corollary, recent literature has focused on the role of cities as facilitators of entrepreneurship and new firm creation (Audretsch, Belitski & Desai, 2015; 2018), including those that are “born global” MNEs (Knight & Liesch, 2016).  Many of these are likely to be based on digital platforms or knowledge platforms that result in firms selling services or locating abroad at an early stage (Autio et al, 2018). Thus, global cities both attract MNEs and facilitate their creation.

Thus, we conclude that global cities reduce spatial transaction costs, which reduces the costs of distance, and favours them as locations for advanced knowledge-based services, including innovative activity. In consequence, knowledge-based services tend to be concentrated in global cities, and to some degree define them. Together they form networks of cities among which these services are traded. At the same time, global cities both attract firms that trade and invest in services, but also create the conditions for the emergence of new global firms. Many of these are likely to be based on digital platforms that result in firms selling services abroad at an early stage (Autio et al, 2018).

Global Cities and International Business: Recent Empirical Evidence

Although the importance of cities has been studied by economic geographers, it has until recently been less prominent in the international business (IB) literature which viewed “location” from a country perspective (see Iammarino, McCann, Ortega-Argilés, 2018 for a survey). However, this has changed over the last few years, with an increasing recognition by scholars of the role of cities as essential components of the process of knowledge creation and diffusion across borders (Cano-Kollmann, Cantwell, Hannigan, Mudambi, & Song, 2016; Santangelo, 2018; Mudambi, Narula & Santangelo, 2018).

A number of empirical studies confirm that global cities are preferred locations for MNEs (Goerzen, Asmussen, and Nielsen 2013; Blevens et al, 2016; Belderbos, Du & Goerzen, 2017; Asmussen et al, 2018), and that peripheral cities are preferred locations if they are proximate to a global city (McDonald et al, 2018). For example, Goerzen et al (2013) argue that global cities reduce the costs of distance, often referred to as the liability of foreignness because they agglomerate advanced service providers, facilitate knowledge flows within and between MNEs, and provide cosmopolitan environments that welcome the foreign presence. Moreover, as emphasized by Belderbos and his collaborators (2016), R&D is an important part of the smile curve, and MNEs have begun to both internationalize their R&D activities, and to co-locate with other MNEs in specific city locations. Thus global cities provide strong incentives for MNEs to locate in them, and these same incentive encourage co-location and co-evolution of firm and location.

Global cities are also preferred locations for HQ functions. For example, Belderbos et al (2017) find that connected global cities are favoured as locations for regional HQs. Asmussen et al (2018) continue this theme and find that global cities provide locational advantages for regional headquarters, which in turn serve as a “beachhead” investment. They provide as an example, the case of Schneider Electric SA, the French energy management and engineering MNE with operations in more than 100 countries. Schneider’s main subsidiary in Denmark is Schneider Nordic Baltic A/S, located in central Copenhagen, listed by AT Kearney as a global city. However, Schneider Nordic Baltic A/S, owns other firms in Denmark, and thus operates as a regional investment platform from its base in Copenhagen. MNEs also prefer to locate R&D and design activities in global cities, as shown for example by Castellani and Lavoratori (2017). At the cluster level, Li & Bathelt (2018) find that knowledge intensive firms are more likely to locate in clusters, both at home and abroad. Thus, MNEs leverage local knowledge pools by strategically locating affiliates across clusters. In addition, there is evidence that internationally connected innovation clusters have performance advantages, supporting the idea that firms and locations co-evolve (Turkina & Van Assche, 2018).

In sum, there is accumulating evidence that globally connected cities and clusters reduce the costs of distance, and thereby attract investment by MNEs. At the same time, these investments link the host location to a global network of knowledge-based locations. Thus, we observe the co-evolution of firms and locations, and an increase in international knowledge-based transactions.

Public Policy

We conclude that the most promising prospects for international diversification that overcomes the costs of distance is in knowledge-based activities and services, and that the location of these services is concentrated in subnational entities, mainly global cities of various kinds. Global cities serve as both innovation and service hubs, with connections among them linked to the activities of MNEs. However, it is not clear whether or how public policy, notably with respect to trade, can effectively recognize the importance of this network of global cities, and become more “place sensitive” (Iammarino et al, 2018).

We propose at least four priority areas:

  1. Domestic policies that foster innovation and clusters in cities are a critical component of an international diversification strategy, because these investments can attract FDI and promote trade in knowledge-based services, and can facilitate the creation of home-grown MNEs. They should, therefore, be understood as the provision of trade-related infrastructure. These policies should incorporate the specific nature of “global” cities, and the different roles each can play. In other words, we propose that domestic policies that strengthen global cities, global clusters or global city regions should be understood as part of a trade diversification strategy. Such policies should consider not only place (where the activity occurs), but space (how it is connected).
  2. Global cities benefit from the strength of their economic clusters. Policies that strengthen clusters not only strengthen the global city but also help spread the benefits to the periphery of global cities as knowledge spills over. Public policy should, therefore, support investments in the infrastructure that connects global cities with their peripheral areas. Due to the different geographies of Canada and the UK the implications of this argument may vary in terms of the number of hubs considered.
  3. Investment promotion agencies representing global cities should focus on developing focused ties with other global cities, and promote cross-border alliances among them. These alliances should be formed with recognition of the different global rankings of cities, and with the goal of seeking complementary industry specialization of the participating global cities. An important outstanding policy question is how the activities of these agencies can be developed as part of a national trade diversification strategy (for example, London & Partners; Toronto Global.)
  4. Global cities should be represented in international trade negotiations to be able to make their interests heard, and to identify trade development opportunities. This applies in particular with respect to provisions regarding services. The question is whether this can be accomplished within current trade negotiation frameworks or whether it implies the creation of new cooperative and deliberative mechanisms (Hoeckman, 2014; (Stephenson, 2016), which include cities in their design.

This post represents the views of the author and not those of the Brexit blog, nor the LSE. 

Daniel Shapiro is Professor of Global Business Strategy at the Beedie School of Business, Simon Fraser University, and co-editor, Multinational Business Review

Saul Estrin is Professor of Management at the London School of Economics.

Christine Cote is Senior Lecturer in Practice at the Department of Management (LSE).

Klaus E. Meyer is Professor of International Business at Ivey Business School. 

Jing Li is Associate Professor of International Business at Beedie School of Business.

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When people decide whether to write to their MP, does the MP’s gender matter?

Alex Parsons and Rebecca Rumbul explain that although women are more likely than expected to write to female MPs, this does not necessarily mean that they are making that decision purely based on gender; rather it may be because certain topics that are more important to them are also ones that female MPs have developed an interest in.

WriteToThem, a mySociety project running since 2005, lets people write to their elected representatives through a website. It takes your postcode and gives you a list of your elected representatives, from local councillors to MPs. It then gives you a box to write a message and sends the email for you.

We’ve previously explored how we can use the website’s responsiveness survey to examine features of the electoral system. This time we’re exploring how the data from the site shows that there is a same-gender effect in constituent communication, with women being more likely than expected to write to female MPs, and men to male MPs (with the effect for women being larger). While personal information is discarded after a period, we retain some anonymised demographic features – derived gender from name and the LSOA of their original postcode. This lets us explore demographics of who the site is being used by, who is writing to different kinds of representative, and how it differs from the overall picture of users to the site.

Because we know demographic use of the site isn’t even, we use chi square tests to see if a particular subset of the data is statistically different from the general picture. From this, for instance, we learned that people writing to MPs on the site tend to be more male and writing from less deprived areas than those writing to other representatives. People writing to local councils have a roughly even gender balance and are writing from more deprived postcodes. This has also thrown up some odd effects like a gender difference in the time people write to their MPs. While generally very few people are writing to their MP at night, those who are, are disproportionately male.

Combining this data with data about the representative they’re writing to, we can examine how these factors interact. Given the overall number of men and women writing to the site, is there any effect where women were more likely to write to female representatives or men to male ones?

For the House of Commons, the analysis showed that, while female MPs received most of their messages through the platform from men (57.9%), a disproportionate number came from women compared to the number of women using the website. The difference between expected and actual was 4.8% (std. residual: 15.45). This effect was similarly true for men writing to men, but smaller – with a difference between expected and actual of 1.09% (std. residual: 7.33). This is quite a subtle effect and requires a large sample size to detect.

Looking for the same effect across all UK representatives covered by WriteToThem we found a similar effect for messages sent to Lords and councillors. For the House of Lords the effect was much larger, with a 16.7% difference between actual and expected (std. residual 14.08). For the European Parliament this also held except the effect for men writing to men is not statistically significant. There was not an effect for the devolved parliament and assemblies (but this might also reflect there were fewer messages sent to these bodies, and so we are less able to detect subtle effects).

One potential show-stopper for this analysis is how it interacts with party. While at present 32% of MPs in the House of Commons are women, this figure is propped up by the Labour Party and drops to 23% if you remove Labour MPs. So, one concern is a greater number of women writing to women might actually be detecting a ‘women are more likely to write to their MP if their MP is a Labour MP’ effect. To resolve this, we re-ran the analysis for each party in turn. This showed the effect can be seen for Labour and Conservative Parties, with the effect of women being less likely to write to men and more likely to write to women visible for the Lib Dems, with no effect for the SNP. These last two results might simply be an effect of the lower number of messages sent to MPs of these parties – making the small effect harder to detect. However, the results for the Labour Party and Conservative Party validate that this effect is not acting as a proxy for party.

The effect is evident (if small), but what does it mean? We need to examine what choices we think people are making. For the House of Lords, WriteToThem gives several options for how you can contact: interest in topic (based on speeches), connection with place, or if they share your birthday. The first option seems the most important as it gives people a list of Lords to choose from and might explain why the effect is stronger. People writing to peers on a specific topic are given the option to choose from a set – which can allow people to make choices based on gender (which people can’t do when writing to their MP).

Alternatively, this might suggest that the important aspect is the topic. Rather than this being an effect based on gender, are there certain topics that are more important to women, and that female MPs are more likely to have developed an interest and profile in? And so the effect is greater for the Lords because it facilitates this ‘person with a specific expertise’ connection?

This area of research is still in development and something we’re trying to figure out how to think about. That gender (or topic) effects are present (if small) presents a new frame for discussions of voting systems that give voters multiple options of representatives, and potential problems with the MP-constituency link when the majority of the country have only male representatives.

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Note: Other mySociety research and the mySociety research newsletter can be found here.

About the Authors

Alex Parsons is a Research Associate at mySociety. He holds a MSc in Democracy and Democratisation and tweets at @alexparsons.

 

 

Rebecca Rumbul is Head of Research for mySociety. She holds a PhD in politics and governance, and tweets at @RebeccaRumbul.

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay, Public Domain.

Book Review: Municipal Dreams: The Rise and Fall of Council Housing

In Municipal Dreams: The Rise and Fall of Council Housing, John Boughton offers a compelling and grounded biography of council housing in England, enlivened by his deep familiarity with the developments he describes. While more convinced by the historical analysis than the more polemical aspects of the author’s arguments, John P. Houghton finds the book a worthy addition to understandings of council housing. 

Municipal Dreams: The Rise and Fall of Council Housing. John Boughton. Verso. 2018.

Find this book: amazon-logo

John Boughton’s Municipal Dreams offers a compelling and grounded biography of council housing in England. It also sets out a more polemical argument in favour of ‘the idealism of the state’. Inevitably, there is a tension between a factual history which includes the repeated failures of council housing in planning and execution, and a manifesto which calls for yet greater faith in government as a housebuilder and landlord.

The chronology of council housing in England can be split into three periods. The first, formative phase ran from the end of the 1800s to the middle of the 1900s. At the start of this era, philanthropists and a small number of far-sighted ‘corporations’ – the forerunners to modern-day local government councils – attempted to deliver humane habitation in response to the disease and degradation of the Victorian slums.

Over the decades, the corporations assumed greater powers first to regulate and then to build and manage what became known as council housing in the 1900s. It was during this period that housing policy became explicitly political. In the cities, local parties competed with each other to promise more and more homes. While in Westminster, worried ministers saw a programme of housebuilding as an essential bulwark against the tide of revolution sweeping other parts of Europe. As the Secretary to the Local Government Board put it: ‘The money we are going to spend on housing is an insurance against Bolshevism and Revolution.’

The second period, from 1945 to the late 1970s, is the apotheosis of council housing in England. Squalor was one of the ‘five evils’ identified in the Beveridge report, which provided the framework for the post-war welfare state. And to banish it from England’s green and pleasant land, council housing was one of the ‘five giants’ created by Clement Attlee’s government and sustained by consecutive administrations.

During this era, central government subsidised local authorities to build millions of new homes. Millions of people were lifted out of cramped, unhygienic slums and rehoused. As a parallel programme of slum clearance destroyed almost as many dwellings, the parties again competed to build more and more. As a result, quality and space standards were reduced, and developers raced to build what they could, using untested and ultimately unsustainable methods of system-building.

The third period, from the late 1970s to the present day, is the story of the fall of council housing. Once a step up the social ladder, by the late 1970s, council housing had become stigmatised and residualised (that is, catering to a small number of people with no other housing options). Under Thatcher, much council housing was sold off, and the stock that wouldn’t shift on the market was transferred to alternative providers. Local government in general was stripped of many powers and prerogatives.

Image Credit: Park Hill, council housing estate in Sheffield, England (Paolo Margari CC BY SA 2.0)

Boughton the social historian is a balanced and judicious guide through this rich and nuanced history, and Municipal Dreams takes its place among the works of Patrick Dunleavy, John Burnett and Anne Power. What further enlivens Boughton’s writing is that he is familiar with many of the developments he describes, from years visiting and writing about council estates on his popular and respected blog.

As a social historian, Boughton is also critical of the failures of both post-war planning and execution. Revisiting Plymouth, for example, Boughton contrasts the ‘vaunting ambition’ of post-war planners to the ‘bleak and impersonal’ reality of what was built (63). The Aylesbury Estate in South London was declared a ‘concrete jungle’ on its opening (131), and the London Borough of Southwark had to pay three times in remedial works what it had saved through the use of system-built construction methods.

Park Hill in Sheffield, which was designed with an unusual level of attention to recreating a sense of community and rehousing neighbours near to each other, had become ‘a very visible symbol of all that had gone wrong with council housing’ (122). This was due to a combination of inadequate maintenance, some design flaws and the deterioration of the local economy which left the population much smaller and poorer. And, of course, there is Ronan Point, the most infamous and deadly high-rise disaster in Britain until the horror of Grenfell.

It is, however, in response to these failings that the tension between the historical analysis and the polemical argument becomes most apparent. Boughton makes the case very early on that ‘we need the state’. Not just its ‘regulation and oversight to protect us’ (6), but, going much further, ‘its idealism’ (6). This translates into a general willingness to forgive the failures of government in relation to urban planning, housebuilding and estate maintenance.

To return to Plymouth, for example, the author defends the city’s post-war planners on the ground that what they envisaged was ‘designed with real care’ (64). Keeling House in Bethnal Green, East London, decayed into a crumbling mess, but ‘great thought’ has been put into the original plans (24).

The problem here is nobody argues that the post-war planners and architects didn’t care enough or act with idealistic intentions. The issue is that they were able to act with impunity, sweeping away lived-in communities and upending people’s lives without giving a say to any of those affected.

The problem was that the idealism of the time dictated that that men in Whitehall (and they were almost always men) knew best. That combination of paternalism and arrogance could find malign expression. As the Chief Planner at the Ministry of Housing and Local Government put it, in relation to ‘slum dwellers’: ‘The task is surely to break up such groupings, even though the people seem to be satisfied with their miserable environment and seem to enjoy an extrovert social life within their locality.’

The author recognises that the ‘the state didn’t, of course, get everything right’ (3), but this is followed immediately by a discussion of the restraints on public spending. In a similar vein, the failure of industrial New Towns like Peterlee is attributed to the ‘gulf […] between aspiration and economic reality’ (79). The answer to the failures of government seems to be more faith in government.

Whereas the latter sections of the history point to real and viable alternatives to both more government at one end and a mindless faith in the free market at the other. These were partnerships which brought together the public, private and community sectors, with a focus on both physical redevelopment and investment in social service sand amenities. What’s more, these examples gave tenants and residents more voice, choice and agency – not enough, but certainly more than was permitted in the immediate post-war years.

For example, the Hulme Regeneration joint company delivered ‘one of the country’s most radical regeneration transformations’, including a reduction in crime and educational improvements (201). In Castle Vale, Birmingham, residents voted overwhelmingly for a programme of extensive physical redevelopment and measures to tackle social problems (194). The New Deal for Communities programme as a whole delivered meaningful change in most of the areas where investment was made and against most of the indicators used to measure progress (227). These examples had their own flaws, of course. Regeneration has become a toxic word in so many places because of high-profile failures like Housing Market Renewal and the handy use of the term to justify deals that leave existing residents displaced and worse off. Regeneration, for many, is a threat, not a promise.

Yet there are also examples out there of neighbourhood renewal that have improved people’s living conditions and the social services available to them, that have created homes for new residents without displacing existing tenants, that have given residents a meaningful voice in change.

This tension between historical analysis and polemical argument finds a particular expression in the introduction. This was written in the immediate aftermath of the Grenfell fire. In the second paragraph, Boughton describes the blaze as a symbol of ‘a crisis in social housing’ and, going further, ‘an awful culmination to deeply damaging policies pursued towards council housing, and the public sector more widely, since 1978’ (1).

This teleological conclusion fits the polemical strand of the book, from which perspective the fire was the inevitable consequence of decades of under-investment and pernicious policies toward – or more correctly against – council housing. Yet the lesson from the historical analysis is that real life rarely fits simple ideological patterns.

For a different perspective on the Grenfell fire, we can turn to Andrew O’Hagan’s extended essay in the London Review of Books. When many other commentators had reached immediate conclusions about what had happened during and immediately after the fire, O’Hagan challenges the general assumptions about the background to the blaze and the role of local agencies.

I have written a lot about the relatively short introduction to a much longer book. Yet that is rather the point of my partial dissatisfaction with Municipal Dreams: that the rigour and evidence-driven analysis of much of the book is undermined by the tendency to make generalisations driven more by ideological conviction than the more complicated and contradictory weight of evidence.

During an exploration of the Mackworth Estate in Derby, it is casually asserted that ‘we are currently dismantling the Welfare State’ (88). No evidence is proffered in support of such a sweeping statement: instead, it is posited as fact, before we return to the tour of the Mackworth. It is hard to square this tendency with Boughton’s call for ‘a fuller and more nuanced understanding’ of the history of council housing. The historian takes the reader in one direction, while the polemicist pulls in the other.

Municipal Dreams is a worthy addition to our understanding of council housing, but it is the historical analysis over the ideological argument that this reviewer found most convincing.

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Note: the above was originally published on the LSE Review of Books.

>About the Reviewer

John P. Houghton is a freelance consultant and commentator on cities, housing and regeneration. He has worked with local authorities, housing associations and communities across the country on making places better. He is the co-author of Jigsaw Cities with Professor Anne Power and has written extensively on people and place. He has a degree from Oxford University, an MA from the University of London and is a US-UK Fulbright-Humphrey scholar.

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