On Saturday morning, I penned a piece called “‘They’re Stealing Our Jobs!’: Populism And False Prophets.”
In it, I decried the fact that populist politicians are playing on the fears and misfortune of voters who feel as though the world has left them behind.
Those voters have a reason to be disheartened. The world has left many of them behind.
But the way to help them isn’t to perpetuate the notion that globalization is somehow reversible (it’s not). Or to suggest that multiculturalism and progressivism are inherently unpatriotic and dangerous (they’re not).
Rather than trying to help disaffected voters adjust to their new reality, populist candidates are instead promising to roll back time. Donald Trump, for instance, has promised to resurrect US manufacturing. That’s a promise he can’t keep. And I’m sure his advisers have told him as much.
Similarly, people like Trump, Marine Le Pen, Nigel Farage, and Frauke Petry have promised to close borders and effectively do away with the notion that we should all be moving towards shared global goals. These politicians and would-be autocrats play on fears of terrorism to promote a nationalist agenda that’s inward-looking and dangerously xenophobic.
Consider all of the above as you read the following commentary from Morgan Stanley, excerpted from a note entitled “Dealing With Voter Discontent and Protectionism” (note specifically the bit about what’s “easily” exploitable by enterprising politicians).
Via Morgan Stanley
Voter discontent is likely here to stay…
Populist voter backlash is likely to be a dominant theme for investors in 2017 as financial markets grapple with the implications of the unexpected outcomes of the US election and the UK referendum and the upcoming political events over the next 12 months. The populist backlash against globalisation and immigration implies a heightened risk of protectionism. A surge of protectionist measures would not only undermine the recovery in global trade, it would also disrupt global supply chains and limit international factor movements, for both labour and capital.
…undermining globalisation, threatening productivity growth
The repercussions of such disruptions cannot be overestimated. A protectionist backlash would not just have an adverse near-term cyclical impact, but also a negative long-term structural impact on potential growth. Over time, less import competition, slower technology transfer and fewer education opportunities would weigh on capital accumulation and on productivity growth. Our conjecture that digitalisation and automation could pave the way for stronger productivity growth would likely be disappointed. The OECD estimates that a considerable part of the post-crisis slowdown in productivity growth could be reversed if global trade intensity was to recover.
Income stagnation, not inequality, likely the main issue
Globalisation has already stalled before the GFC. During the GFC and again recently the average degree of openness of the global economy dipped. Global trade has been weak for cyclical and structural reasons, notably the shift from more internationally traded capital goods to less traded consumer goods, and a process of onshoring in China. Like most forecasters, we expect a gradual normalisation in global trade dynamics. The rising voter discontent with respect to globalisation and immigration is likely connected to stagnating median real incomes and rising income inequality in DM. While globalisation is by no means the only factor behind the increase in inequality, it is easy to exploit politically. Alas, neither protectionist policies nor fiscal stimulus or monetary policy will likely boost real income growth on a sustained basis. This can eventually only be achieved via faster productivity growth, stronger investment spend- ing and broader access to education. Voter discontent will therefore likely rise further if protectionism starts to cause job losses and higher inflation.