The shifting global economic and political landscape
- March 7, 2019
- Posted by: Simon Wait
- Category: IBIS News
Understanding the current environment is one thing; understanding how it happened is something else.
Delegates at IBIS USA were exposed to a thought-provoking history lesson by Professor Michael Cox, director of LSE Ideas and Emeritus professor of international relations at London School of Economics, who helped shed a light on the major socio-economic events of recent times that have helped shaped global industry.
He began his session, titled ‘The shifting political and economic landscape,’ by looking at globalisation. He said that while immigration was not new, the scale of it now was accelerating and posed a genuine challenge.
Its benefits include wealth creation in some of the poorer parts of the world, he said, saying it was the only way to provide governments with the means to combat poverty: money for schools, hospitals and welfare.
However, he said support of globalisation was decreasing in the west, with some saying it imported competition, increased inequality and had no impact on purchasing power, despite pay checks increasing.
The professor then discussed the financial crash of 2008 as a cause for turning opinion against globalisation. Since then wages have been depressed for 85% of the workforce, leading to a rise in income inequality in the USA.
Apart from the financial fall-out, there has been moral outrage as the ‘financial overclass responsible for the crisis not only got off scot-free but was also getting richer in the bargain.’
That fury, argues Professor Cox, is partly what carried President Trump to the White House.
‘It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth, and put that money into the pockets of a handful of large corporations and political entities,’ the President claimed, attacking what he called ‘the false song of globalism. Globalisation has made the financial elite who donate to politicians very wealthy. But it has left millions of our workers with nothing but poverty and heartache.’
Professor Cox also suggested China’s unprecedented rise has raised questions in America over which country will dominate the 21st century.
In terms of numbers, he said that global migration was 173 million in 2000, 220 million in 2010, and 258 million in 2017. Of the 85 million extra migrants since 2000, 64 million have moved to high income countries.
An unintended consequence has been a rise in populism, but while it appeals to many people it does not, Professor Cox says, have any economic solutions.
He said, ‘What might we expect from a world economy run by populists? How might markets react? One way of looking at this is to think of populism as a reversal of globalisation. Envisage a world economy with far more restrictions on trade and labour mobility.
‘In such a world, we would expect global trade and growth to be weaker as barriers cut off opportunities. Rather than reaping the benefits brought by specialisation and economies of scale, industries would shrink back to their domestic economies. Productivity, which has benefited from the opening up of competition, would slow even further.
‘The corporate sector would be at the sharp end of this, facing greater challenges in sourcing labour and importing inputs. Wage growth would likely be stronger, putting pressure on company margins.’
Should this result in a trade war between USA and China, the IMF found that global GDP output would fall by 0.8% in 2020 and ‘inflict significant costs to the global economy, especially through its impact on confidence and financial conditions.’
For America specifically, a weakening of its global leadership position would invite other countries to push their own policy priorities more confidently. It could be argued this is already happening.
The US National Security Strategy, 2017, said, ‘China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity. They are determined to make economies less free and less fair, to grow their militaries, and to control information and data to repress their societies and expand their influence.’
Globalisation, Professor Cox said, was on a ‘shaky path’.
IBIS USA partner were 3M, Axalta, Solera Audatex, BETAG Innovation, Symach, Enterprise Rent-A-Car, Fix Network World, Mitchell International, PPG, RSG, Verifacts, CARSTAR, Caliber Collision, Chief Automotive, I-CAR, OE Connection, and PartsTrader LLC.