News & Opinion

Populist Politics: the backlash of unfettered globalisation

26 February 2018

Populist Politics: the backlash of unfettered globalisation

 

As we head through the early part of 2018, there are some very important trends emerging and playing out. I will address these and, please, bear with me on some of them as I believe they will be affecting our lives for some years to come.

The USA got off to a good start, and despite the return of a bit more volatility as shown by the recent correction, most forecasters are predicting a good year,  but not a stellar one. There is a good deal of exuberance in the US stock market and many commentators are expecting earnings to grow.

The World Bank is predicting global growth of 3.1%*, again, not spectacular but something we need to get used to in a global environment of low inflation.

There are housing bubbles in Canada, Australia and China, although the latter appears to be stalling at present. Property bubbles are always a cause for concern as they always involve leverage and, as 2007-2009 showed only too clearly, once people are unable to service the debt, the dominoes start to tumble.

For me, the biggest threat to stability and progress around the world is the spectacular rise in populist politics.  

A lot of this is a backlash against decades of globalisation as evidenced by the rise in Protectionist Policies. Ironically, this is happening at a time when the US is stepping back from its traditional role of global leader and guarantor of what is being called the Pax Americana.

Since the end of WW11, the world has had the US enforcing the spirit of free trade, but I suspect those days are gone. The benefits of Globalisation have not been evenly distributed and we are now seeing the backlash.

Globalisation has, since the 1970s, seen the transfer of millions of jobs from the US to emerging countries and that has changed the relative value of capital and labour the world over. One of my favourite historians, Niall Ferguson, has said that around 40 million Americans lost their jobs in the GFC (Global Financial Crisis) and the backlash is starting to be felt.

The same story is playing out in Europe where populism is on the rise as a backlash against the EU, who have completely ignored the massive concern shown by many member states over both the EUs mismanagement of the financial crisis, and its apparent failure to stop over a million people entering its member states in an uncontrolled fashion.

As examples:

  • Austria has elected a 31 year old anti-immigration candidate as Chancellor.

  • Italy’s Populist Five Star movement are leading in the polls for the March 4 election.

  • German Chancellor Angela Merkel won the election but, four months later, hasn’t been able to form a government because of the strong showing by the populist Alternative for Germany party.

Ferguson believes it is the beginning of the end for the EU and I suspect he’s right. So, when you start to see the rise in populism coupled with a rise in protectionism, you can well expect disruption in the markets.

Meanwhile, back in “Shortland Street”, business has typically not reacted well to the election of a Labour-NZ First Government, with polls** showing a sharp drop in business confidence. To be fair, this is nothing new, as 2000 was a particularly bad year for business following on from the election of the Clark-led government in 1999.

What was different then was that they then had seven years of arguably the best economic times in decades to mitigate the perceived negativity. They will certainly not have that this time around.

With so much uncertainty and a low inflationary environment, it’s hard to see any current justification for a hike in interest rates. However, with Labour clearly signalling their desire for higher wages, this will feed through into the economy and generate some inflationary pressure possibly resulting in interest rate rises.

So, some very interesting trends to watch out for, all of which only reinforce the need for a defensive portfolio approach and diversification.

Denis McMahon, Director