Progress Interrupted by Populism


Progress_PanelThe CFA Institute Annual Conference is an unrivaled opportunity to access high-quality, unbiased educational content that equips investment professionals with the latest thinking on critical industry issues. The 71st CFA Institute Annual Conference will be held in Hong Kong on 13–16 May 2018.

US President Donald Trump wasn’t elected by chance. Nor did Brexit come out of the blue.

Citizens in the western world have become fed up with politicians who don’t listen to them, said Neil Howe, economist, and co-author of The Fourth Turning.  Howe was speaking to delegates at the 70th CFA Institute Annual Conference as part of a panel discussion titled, “Progress Interrupted: The Revolt against the Status Quo and the Challenge to 20th Century Institutions.”

Panelist Michala Marcussen, CFA, offered her perspective, likening today’s populist climate to the 1920s–1930s, a time which gave rise to authoritarian dictators such as Benito Mussolini and Adolf Hitler. Ominously, Howe noted that in the 1930s, the authoritarian regimes mentioned by Marcussen not only grew in power but also in popularity.

In contrast, Willis Sparks, director of global macro at Eurasia Group, was “very concerned” about the rise of populism, but said it is different than the 1930s. Sparks believed that the root cause of the populism growth is that people are seeing their lives change more rapidly than their ability to control them.

Speaking to the audience, moderator Gillian Tett asked for a show of hands to see how many thought that the populist tide had peaked and would start subsiding. Scarcely a hand went up.

Howe described the populist movement as a worldwide phenomenon, believing that the resulting political trauma is far from over. He predicted that in the next few years, the European Union (EU) would break up. Marcussen was a bit more sanguine, highlighting how French voters were not necessarily endorsing an EU exit when they backed the far-right French presidential candidate, Marine LePen. She added that other candidates similarly discussed an EU departure, but one contingent on fairness and social issues, implying that they were less driven by populism and more by strengthening existing institutions.

The world is grappling not only with populism but also with technological change and the long-tailed effects of globalization. According to Sparks, the shale oil revolution is creating a crisis for both Russia and Saudi Arabia, whose economies are highly dependent on oil.

Sparks also noted that 47% of US jobs could be lost to automation, possibly within the next two decades. In the emerging markets, it is two-thirds, while in China, it is as high as 77%.  So, whatever the net impact automation has on employment, the transition will be much more profound in the developing world.

With respect to globalization, the panelists were in broad agreement that wage competition around the world has arrested the prosperity of the lower income workers in the developed markets.  This phenomenon has intensified the populist movement.

Tett wondered whether populism would be bad for market prices. Marcussen offered a resounding “yes,” saying that populism that seeks to break up Europe would be disastrous. She predicted that Brexit will cause the United Kingdom to lose ½ to 1 point of GDP growth over the next 10 years.

In the United States, Sparks said that President Trump is tied in knots by the government, and won’t be able to enact much change. Howe suggested that market weakness would actually be good for Trump politically. In fact, he joked that Trump could harness the event with clever rhetoric saying, “Markets going down is the feeling of corruption leaving our body.”

Ultimately, it would bring more authority to the White House. However, this concentration of power could play right into the hands of the millennial generation.  “Millenials are less interested in democracy and less impressed by its ability to solve problems,” said Marcussen. They are taking over local politics in the US Democratic Party proclaiming that “the kids are coming and they may be socialist.”

In short, populism may be just beginning.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo courtesy of W. Scott Mitchell

This entry was posted in Alternative Investments, Economics, Investment Topics, Risk Management, Speakers and tagged , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *