[Kaiserschmarrn]

Did the global elite’s devotion to borderless capitalism sow the seeds of a populist backlash?


Kenneth Rogoff can pinpoint the moment he started to grow concerned Donald Trump would be the next U.S. president: It was when Rogoff’s fellow attendees at the World Economic Forum’s annual meeting last January said it could never happen. “A joke I’ve told 1,000 people in the months since leaving Davos is that the conventional wisdom of Davos is always wrong,” says the Harvard professor and former chief economist of the International Monetary Fund. “No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is.”

The repeated failure of business and political elites to predict what’s coming—last year, that included the U.K.’s vote to leave the European Union—doesn’t strike those returning this month to the Swiss Alps as very funny. After a year in which political upsets roiled financial markets and killed off the careers of once-dominant Davos-going politicians, the concern for delegates attending this year’s meeting isn’t that their forecasts are often wrong, but that their worldview is.

In its four decades of existence, the WEF has nurtured a broad consensus in favor of globalization and open markets. At its core is the notion that capital, goods, and people should be able to move freely across borders, a principle that can deliver huge benefits to those with education and money but seems terrifying to those without either. For the 3,000 people who will convene in the small Swiss town from Jan. 17 to 20, the 2017 event could be a moment of reckoning. At speakers’ podiums, coffee bars, and the ubiquitous late-night parties, they’ll be asking themselves whether Davos has become, at best, the world’s most expensive intellectual feedback loop—and, at worst, part of the problem. “Since the recession, the boom has benefited the upper-income earners and done little for those in the middle or on less. That’s the backlash,” says Nariman Behravesh, the chief economist for research provider IHS Markit. “The Davos vision of the world has not delivered a broad-based economic recovery.”

That the world is entering an era of populism that could tear apart long-established global bonds is beyond question. The result of the Brexit vote threatens the U.K.’s most important trading relationships. In the U.S., Trump will take office this month having pledged to reopen trade deals and reevaluate bedrock foreign policy principles such as the so-called One China policy. Italian Prime Minister Matteo Renzi resigned in December after voters rejected proposed constitutional changes.

In France, hard-right leader Marine Le Pen leads opinion polls going into this spring’s presidential election. And in Germany, where elections also loom, the anti-immigrant Alternative for Germany party has sought to capitalize on mounting opposition to Chancellor Angela Merkel’s open-door policy for refugees fleeing Mideast war zones, which some believe has left the country vulnerable to terrorist attacks such as the one in Berlin on Dec. 19. Almost a third of bond investors surveyed last month by Bank of America Merrill Lynch identified populism as their biggest concern, up from 9 percent in October.

Collectively, anti-establishment forces may represent the greatest threat to what historian Samuel Huntington called “Davos Man,” a cross-border species whose values and interests are often divorced from those of more insular compatriots. While each populist movement is unique, all share a generalized disdain for elites, however defined—and by extension, the economic prescriptions they promote. Huntington, who died in 2008, may have divined the future when he said Americans might eventually rebel against rising immigration, especially from Mexico, and the growing influence of multinational businesses and intellectuals.

Some Davos regulars worry those sentiments will lead the U.S. and other nations down a dark path. “The last time that we had a convergence of fear of globalization, fear of economic stagnation and poverty, fear of the international, it was after the 1929 crash,” says Ngaire Woods, dean of the Blavatnik School of Government at Oxford University and a frequent Davos visitor. “We really have to learn the lessons of the 1930s.”

This year’s conference agenda makes clear the degree of anxiety. Sessions include a panel of psychology experts offering thoughts on “cultivating appropriate emotions in a time of nationalist populism.” Another, titled “Squeezed and Angry: How to Fix the Middle Class Crisis,” will star International Monetary Fund chief Christine Lagarde alongside hedge fund billionaire Ray Dalio. Separately, Facebook executive Sheryl Sandberg and Meg Whitman, chief executive officer of Hewlett Packard Enterprise, will try to stoke optimism in a chat about shaping “a positive narrative for the global community.”

The most talked-about guest will undoubtedly be Chinese President Xi Jinping, who’s attending for the first time. He’ll be pitching a Chinese-led rival to the Trans-Pacific Partnership, the proposed pan-Asian trade deal that died with Trump’s election. It’s an irony of the times that it’s Communist-run China that’s promoting free trade.

Davos veterans are meanwhile trying to foster a global capitalism that’s more in tune with the global mood. The IMF’s Lagarde said in December she wants a “move toward globalization that has a different face, and which is not excluding people along the way.” BlackRock Vice Chairman Philipp Hildebrand said in an interview that it’s important “there be some repositioning to show Davos can make a contribution to dealing with the fundamental issue of inequality of opportunity.”

All is far from lost for the Davos set. Critics predicted the death of the Davos consensus after the 2008 global financial crisis, only for the conclave’s prominence to continue to rise as the masters of the universe kept showing up. Global equities have rallied since Trump’s election, with the benchmark MSCI World Index nearing record highs, as investors bet that his administration will pursue an expansionary fiscal policy and slash regulations on industries such as finance. Trump may not be an adherent of the liberal internationalism preached at Davos, but he could prove quite beneficial to its proponents’ bank balances, at least in the short term.

What’s more, his cabinet is packed with individuals who would be much more comfortable on the Swiss town’s central promenade than at, say, a Wisconsin Walmart. Trump’s National Economic Council director, Gary Cohn, is well-known at Davos because of his former life as president of Goldman Sachs. Another Trump confidant, hedge fund manager Anthony Scaramucci, has traditionally hosted one of the event’s best-attended annual parties.

Even as Davos attendees say they aren’t about to stop advocating for the policies they’ve endorsed for decades, which they believe remain the best way to deliver prosperity, it may be time to concede they’ve been going about it the wrong way. “There has to be some humility. For 30 years the elite have said, ‘We’re managing globalization, and we’re making it work for everyone,’ ” Woods says. “They cannot just keep repeating that.”

The bottom line: The Davos consensus nurtured by four decades of World Economic Forum meetings is at best broken and at worst dead.


Bloomberg

The question mark in the first line is superfluous of course.

As expected, they are convinced that their position is fundamentally right and they just have to change the narrative a bit, similar to the idea that if politicians just explained the benefit of their preferred policies in the right way, then people will understand and come around. Hence:

Sessions include a panel of psychology experts offering thoughts on “cultivating appropriate emotions in a time of nationalist populism.”

I predict that relying on the findings of positive psychology won't work, although considering the practices of the field they may still be able to spin results as positive.

[Frollein]

Thanks for posting the article, Kaiser, you beat me to it.

This year’s conference agenda makes clear the degree of anxiety. Sessions include a panel of psychology experts offering thoughts on “cultivating appropriate emotions in a time of nationalist populism.” Another, titled “Squeezed and Angry: How to Fix the Middle Class Crisis,” will star International Monetary Fund chief Christine Lagarde alongside hedge fund billionaire Ray Dalio. Separately, Facebook executive Sheryl Sandberg and Meg Whitman, chief executive officer of Hewlett Packard Enterprise, will try to stoke optimism in a chat about shaping “a positive narrative for the global community.”

That has to be the best paragraph of the whole thing. Psychologists teach how to manipulate the masses (I presume they didn't mean to teach the "elite" how to generate "appropriate" emotional responses in themselves), Christine Lagarde and a hedge fund manager tell the other wolves how to best manage the sheep, and the spin doctor tutors our masters on how to "better explain" their supreme and benevolent rule.

[AFAIK]

[Kaiserschmarrn]

That has to be the best paragraph of the whole thing. Psychologists teach how to manipulate the masses (I presume they didn't mean to teach the "elite" how to generate "appropriate" emotional responses in themselves), Christine Lagarde and a hedge fund manager tell the other wolves how to best manage the sheep, and the spin doctor tutors our masters on how to "better explain" their supreme and benevolent rule.

It's my favourite as well!

Expect lots of statements about income inequality and fairness to come out of international organisations, governments, etc.

[Rugoz]

Expect lots of statements about income inequality and fairness to come out of international organisations, governments, etc.

And what would be wrong about that?

[Albert]

Interesting article, thank you for posting it Kaiser.

Here is more:

Chinese billionaire Jack Ma says the US wasted trillions on warfare instead of investing in infrastructure

Alibaba founder Jack Ma fired a shot at the United States in an interview at the World Economic Forum in Davos, Switzerland.
Ma was asked by CNBC's Andrew Ross Sorkin about the U.S. economy in relation to China, since President-elect Donald Trump has been talking about imposing new tariffs on Chinese imports.

Ma says blaming China for any economic issues in the U.S. is misguided. If America is looking to blame anyone, Ma said, it should blame itself.

"It's not that other countries steal jobs from you guys," Ma said. "It's your strategy. Distribute the money and things in a proper way."

He said the U.S. has wasted over $14 trillion in fighting wars over the past 30 years rather than investing in infrastructure at home.
To be sure, Ma is not the only critic of the costly U.S. policies of waging war against terrorism and other enemies outside the homeland. Still, Ma said this was the reason America's economic growth had weakened, not China's supposed theft of jobs.

In fact, Ma called outsourcing a "wonderful" and "perfect" strategy.

"The American multinational companies made millions and millions of dollars from globalization," Ma said. "The past 30 years, IBM, Cisco, Microsoft, they've made tens of millions — the profits they've made are much more than the four Chinese banks put together. ... But where did the money go?"

He said the U.S. is not distributing, or investing, its money properly, and that's why many people in the country feel wracked with economic anxiety. He said too much money flows to Wall Street and Silicon Valley. Instead, the country should be helping the Midwest, and Americans "not good in schooling," too.

"You're supposed to spend money on your own people," Ma said. "Not everybody can pass Harvard, like me." In a previous interview, Ma said he had been rejected by Harvard 10 times.

Along those lines, Ma stressed that globalization is a good thing, but it, too, "should be inclusive," with the spoils not just going to the wealthy few.

"The world needs new leadership, but the new leadership is about working together," Ma said. "As a business person, I want the world to share the prosperity together."

Some Chinese perspective on the current issues.

[Decky]

Capitalist traitors love immigration, who knew? Oh yea, anybody with a brain. Open markets come with open borders, you don't get one without the other as capitalists see labour as just another commodity to be bought and sold. They will import as many as they can possibly get away with. If you are not a socialist then you are part of the problem not part of the solution.

[foxdemon]

Interesting article, thank you for posting it Kaiser.

Here is more:
Some Chinese perspective on the current issues.

The Chinese view is indeed interesting.

I agree with Ma that the US has wasted too much money fighting in the ME. And I agree they should have invested in their own infrastructure instead.

However, neither Ma nor Xi are being completely honest. China would not be where it is now without American direct investment on a huge scale over the last 30 years. It was largely the Davos crowd who created China's modern economy. And they did this so to avoid having to pay Western wages to the work force.

Furthermore, those expensive wars have served China's interests well. Crushing extremism in Afghanistan has protected both Russian and Chinese interests in Central Asia as well as prevented extremism extending into China's western provinces. China also benefits from American naval power creating peaceful oceans for trade to flourish. China has also been able to gain access to ME oil in the wake of US actions.

Now here is China, the supposedly communist People's Republic, waxing lyrically on the virtues of global capital. China has been the great beneficiary of globalisation whereas the American middle class has been the great loser in this process. For Ma of Xi to preach to Americans probably isn't going to go down too well in the States.

But Xi and Ma are essentially right. Western leaders, both political and business, are 'toe rags' and their policies in recent decades have only screwed over their own nations whilst they enrich themselves. This is the source of the rising tide of anger. The Chinese, typically of Asian leaders, are quite conscious of the need for political and social stability. This is something Western leaders show little thought toward, and even less regard, and hence the wave of popularism has creeped up on them and bit them on the arse.

China is very vulnerable to disruption of global trade. As I said, they are the primary beneficiary of globalism. Hence they are clearly pro US 1% crowd and anti Trump popularist crowd. It is interesting that they are proposing 'new leadership', even cooperative leadership. It is quite remarkable how reasonable China's leaders can seem when they are amongst those who are stronger than them. In Asia, among nations that are weaker than China, they use coercion and intimidation instead. Sure, they sound reasonable at Davos but of course everyone in Asia knows they aren't to be trusted.

None the less, they are right. The West does indeed need a change of leadership. Well, I guess with Trump that just happened. At least Putin is happy about it even if Xi isn't.