The Financial Express

Foot-loose & fancy-free global economy: Wildcards as trip-wires?  

Foot-loose & fancy-free global economy: Wildcards as trip-wires?   

As we enter the last 2019 quarter, it is instructive to look back and inquire why the impending economic downturn predicted by many has not as yet happened, but since growth rates continued to be slashed throughout the year, to also explore the role and place of imponderables. Underwriting them both have been unfolding political developments than routine economic performances.

The Economist Intelligence Unit had alerted us to a string of 'risks' as early in the year as could have been. They included all the predictable political drama we can think of, from the U.S.-China tariff war to the military square-off between them in the South China Sea, from Brexit gridlocks to Korean missile-launching, and from corporate debt spiraling and oil-price hikes to cyber attacks and financial/banking malfunctions. Sean Fleming, who wrote that piece in March, alerted us to "the rise of so-called populist leaders," thus hinting very brusquely the risks were not short-term either ("The Top Ten risks to the global economy . . . ," World Economic Forum, March 6, 2019). Of course, we followed the course of many of these possible risk-generating populists all year long, drawing the same 'impending collapse' conclusion.

Since these risks have not exploded as yet, but could easily be ignited by any other development, stock-markets have had a rough year: every ascent indicating how the international political economy is ready to break through new thresholds; but every one of the many descents, some very unusually sharp, constantly reminding us how fragile the global economy, needing both feet to stand on, yet limping to take a stand. If stimulus packages have not turned the economy around in the decade-odd usage of them, then something secular is seriously amiss.

Joseph Stiglitz's book, People, Power and Profits: Progressive Capitalism for Age of Discontent (W.W. Norton, 2019), added a more realistic twist: that the top-three economic arenas, China, the European Union, and the United States, were performing abysmally bad to sustain growth elsewhere on the planet. In fact, all year we have been alerted by various economic or monetary institutions of downward growth-rate revisions, in the United States to 2.9 per cent from 3.2 per cent, and not to expect to improve next year; and the European Union also stuck at an even lower figure yet again, including the power-house, Germany. Since these also happen to be major export destinations of less developed or emergent countries, a contagion effect was only itching to let loose.

When all is said and done, though, abrupt developments have shaken the economy more than these predictable forces. Key among them was the Houthi bombing of a petroleum facility in Saudi Arabia, which literally threatened to strangulate high-growth Asian economies if it was replicated elsewhere or worsened through retaliation. True, the expected price-hike duly followed, but how global stock-markets rattled on this news also reaffirms how we cannot continue to live in glass-houses with a mindset fixated upon predictable developments and outcomes. A clear warning was emitted, urgently at that, how a little misstep anywhere could have long and deep repercussions everywhere.

Where might such a misstep occur? Fleming's mention of populism is a start, and the ones he spoke of the most grab immediate attention. Boris Johnson and Donald J. Trump have been a little too maverick with business-as-usual policy-issues to expect their countries to escape unscathed from the consequences: dissolving parliament and castigating the House of Representatives only weaken the domestic democratic framework, no matter how rusty that framework has become for today's more restless youth generation, as compared to the more contemplative ones who installed them in the first place; and then to impose authoritarian policy-options abroad, such as a no-deal Brexit and whipping up the tariff threat more broadly than with China, also removes the taste behind diplomatic negotiations and invites unilateral impositions.

The danger lies elsewhere. As this week's Economist tells us, the populist reference to 'the people' not only aligns with an autocrat's similar reference to 'the people' (even leaders with good intentions, the author clarifies, like Princess Diana, 'the people's princess', do so), it is when 'the people' "are weaponised against a supposed enemy" that institutions, some of them the sturdiest in the country at stake, like "the legislature, the courts and the media," that inevitable long-term damage is inflicted: populist supporters will defy those institutions even after the populist leader who campaigns against them is voted out; and indeed, by bastardising 'the people' usage, these inherently anti-democratic leaders actually win democratic elections. If they get re-elected, a huge social change cannot but be far away, as we learned from Adolf Hitler's 1930s case.

We stand on the cusp of such leaders underwriting global peace through condoned or condemned local actions under 'the people' label. This has happened before our very eyes: from a Rodrigo Duterte to our east in the Philippines, to a Jair Bolsonaro in Brazil to our west, and India's fiery, fractious Narendra Modi in the middle. There are others we need to keep an eye on, but even greater vigil must be directed to developments elsewhere, and along three dimensions: (a) how outright authoritarians in power, like Abdel Fattah al-Sisi in Egypt, Mohammad bin Salman in Saudi Arabia, and Venezuela's Nicolás Maduro, among others get either more encouraged to vilify 'the people', or be vindicated for egregious human rights violations; (b) fragile democracies, as in South Africa, Thailand, and across Latin America, wilt against such populist measures or rise to the hilt of the kind of democracy 'the people' prefer; and (c) mature democracies succumbing to pure or half-breed populist threats, as in Canada, where an election knocks this month, Indonesia under an Islamic siege, and elsewhere.

Ripples in the wrong direction from these unsavory cases could endanger not just the global economy, but also, and because of it, the social contract of stable countries, cultural divisions would be resurrected to the detriment of both sides. Though prevalent passions have taken on a life of their own, their origin in this neo-liberal age must partly be traced back to the profound socio-cultural changes technological development has imposed. This alone inflicts an equally challenging proposition: either we rise to help streamline the shift into a Fourth Industrial Revolution workforce, meaning rebuilding the necessary academic, communicative, political, and social infrastructures, or let the populist disposable resources available, which makes us so vulnerable to a populist domino effect that leaders must rise to in every domain, if only to retrain 'the people' more rationally than emotionally.

That alone would cripple the ever-growing populist infrastructure, and with it open the gateways fully to technological progress, adaptation, and cultivation.

Populism aside, Mother Nature is also exacting a higher toll on Planet Earth. If not the routine summer fires spiraling, then those generated by forest-clearing for cattle-ranches, have begun to spread suffocating local practices or occurrences too globally for us to not be worried about. Or floods also wreaking more havoc more often than in the past. If we set aside this 'cost' column of our account ledger, and turn to practice measures underway, we run into other fiscal constraints. The most obvious example is fulfilling the many SDG items, or at least finding the money to boast 'mission accomplished'. With one OECD (Organisation of Economic Cooperation and Development) report informing us 15 per cent of the people in the richest club belong to the 'poor' category, and there is a $2.5 trillion annual funding gap, indeed, SDG investments have fallen, we may be setting the stage for a serious, unprecedented crunch.

These might add up to a storm in a teacup, but imagine how explosive those costs would become if thrown against a financial crisis, or a populist gone berserk. If we are already running thin on patience, there we go, another element of stability evaporating. Since the Great Recession, that is all we have been witnessing, no game-changer, no irreversible new growth.

We are lucky to still be on our two feet. That should be enough to quell these wildcards.

Dr. Imtiaz A. Hussain is Professor, department of Global

Studies and Governance, Independent University.



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