One of the top strategists in the world explains the wave of populism that's sweeping the globe and the role technology has played
by Jonathan Garber
Viktor Shvets is Macquarie's head of global equity strategy and Asia-Pacific equity strategy.
We recently spoke with him about Donald Trump and the wave of populism that's spreading around the world and what role technology has played.
This is part one of a series.
This interview was lightly edited for clarity.
Jonathan Garber: What does history say about the implications of a Donald Trump presidency for the global economy?
Viktor Shvets: You've probably seen the paper that we've written on populism, and what does it actually mean. For different people, it means clearly different things, but the essence of populism, whether it's the left wing or the right wing, is that they tend to use the power of the state very aggressively to fulfill whatever objectives they want to achieve. Populism sits easily with both extreme left and right who claim to represent ordinary people in their struggle to restore their right to be heard as an expression of "pure will of the people."
In the case of left wing, it could be a redistribution of wealth ("billionaires corrupting our system"). It could be nationalization of businesses. In the case of right wing, policies could be different (such as nationalistic undertones, "build that wall"), but the answers are still the same, "we are prepared to use the state aggressively to achieve what we think is right." Whether it's Theresa May in the UK or Donald Trump in the US, or a number of other presidents and prime ministers that have appeared over the last couple of years, most of them had a populist tilt. Given that dislocated electorate is suspicious that it might be a victim of a "bait and switch," it tends to gravitate to extremes, and this pulls conventional politics to either the extreme right or left.
Essentially, what politics is doing is responding to cries for help. In other words, people are suffering, and the politics have to respond. It's as simple as that. Now, why are people rebelling? Primarily because productivity growth rates have been very low globally, in some cases for decades. In the case of the United States, total factor productivity has not really grown since the mid-1970s.
Just increasing fiscal spending doesn't necessarily increase productivity. What does increase productivity is the ability to combine labor and capital in a way that generates incremental output compared to the inputs. Because productivity rates remained low for an extended period, society theoretically should have been getting paid less, but society's insistence on continuing wealth creation and uninterrupted growth implied that politics needed to respond and the only answer was deregulation and leveraging. We had a deregulation of capital markets, deregulation of labor markets, deregulation of product markets. The purpose was to give people the freedom to try to make money through greater flexibility, asset prices, and leveraging rather than through conventional wages and earnings.
Since 1980s, we all started to leverage. As productivity stagnated and leverage increased, income and wealth inequality started to rise. That's been the case for decades. That's not anything new, but there eventually comes a time when populace starts to believe that the system is not functioning properly. That started to happen not just five or 10 years ago, it actually has been going on for decades. The dysfunctionality of Washington is a reflection of a dysfunctional society. Politics is simply a mirror. The way I look at it whether it's Brexit, Theresa May, Beppe Grillo, Le Pen, or Donald Trump, it is a response to people's crying for help.
The question then becomes of course why productivity growth rates have been so limited for such an extended period of time. This is a fertile area for debate but to my mind, there are two reasons why that is the case. Number one is technology, and number two is overleveraging and overcapacity that we have created, as our preferred policy responses.
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