Politics is never certain.
Yet from Brexit and wider Eurozone disquiet, to the isolationist rhetoric permeating the US elections, one thing is clear: the former mantras of globalisation and deregulation are facing increasing opposition.
Voters across the developed world are expressing the view that the benefits of operating at an international scale have been offset by lower wages, weaker employment prospects and rising inequality. This public sentiment has not yet forced globalisation into reverse. However, the slowdown has significant implications for citizens, governments and investors alike.
The first is that less global trade means less global growth. Politicians are rowing back on several major trade agreements under discussion, such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). This will inevitably add grit to the global gears.
With trade constituting approximately 40 per cent of global gross domestic product, this could slow economic growth at a time when it is already fragile. If global trade were an economy, it would be the largest in the world – nearly twice the size of the US economy – but it is rarely viewed in this way by policy-makers.
Second, corporate responsibility must be redefined. Many multinational corporations have benefited from decades of globalisation, especially in terms of trade and finance. If politics increasingly favours local brands and forces local taxation, it will present a real headwind.
More immediately, disputes like the recent Apple/European Commission tax rulings could increase inter-regional tax frictions, hindering the allocation of capital and reducing returns to shareholders.
Those management teams that can work with governments to ensure corporate responsibility is viewed in the widest manner possible – beyond its impact on earnings per share – are most likely to reward themselves and their stakeholders.
Third, politicians in the developed world will soon have to confront the cost and financing of their welfare states. The alternative is to risk seeing their millennial children revolt against honouring the unfunded promises made to their parents.
Currently, these structural reforms are eluding demographically challenged countries such as Japan and most of Europe. It is unlikely that deglobalisation will solve this. Even in the US, the current outstanding debt-to-GDP level of 100 per cent is dwarfed by entitlements yet to be accounted for, which equal more than $130 trillion or 500 per cent of US GDP. The longer these challenges are left unanswered, the bigger they will become.
Finally, fiscal stimulus should be fiscally responsible. Dull levels of global economic growth are being met with growing calls for more fiscal and infrastructure spending at a local level. However, these should be balanced with similar levels of concern over the affordability of such outlays.
Enormous investments are certainly needed in the big economies of the future such as India, Indonesia and Africa, not to mention the repair and maintenance needed in the developed world. Yet rather than be funded by more borrowed money, these investments must both cover the cost of financing and add to these regions’ economic prosperity and productivity. If not, they are simply Ponzi schemes.
To many, our secular Western perspective of a modern, stable world under Pax Europaea and Pax Americana appears to be ending. In its place we risk returning to a version of countries and states that predates the cohesive solutions of our post WWII-era.
It is only through solutions which acknowledge globalisation’s failings but more fairly divide the spoils across and within borders that still more political tension can be avoided.