Globalisation isn’t going away, nor is it to blame for the world’s economic woes
Davos attracts “A-list” business and political celebrities who are happy to break a boring January to go skiing – and to drop their pearls of wisdom on a panel or two. The bankers were interesting, and (for once) unpredictable. The trade people, caught in a phoney war with President Trump, were predictable but uninteresting. This year’s stars were the politicos – who were both interesting and predictable.
It was a window to a coming age that in the absence of the Americans (brownnosing ahead of the inauguration), China took the big billing. In the face of Trump’s vociferous attack on global trade, President Xi Jinping gave a pre-released keynote speech saying that globalisation was not to blame for the world’s economic woes. No propaganda this… he is quite right, even if he was talking up his own book.
China desperately needs world trade as it continues to be a “taker” of the world’s economic success and ills. It has been seven or eight years since the Great Economic Transition was due to take place – the move from an export to a consumer-led economy. China is still heavily dependent on the US and would lose a trade war, even if it gave the Americans a bloody nose in the process. We would all lose – which is why Xi has to keep the globalisation flag flying.
He was joined in spirit by British Prime Minister, Theresa (“Brexit”) May, who in another speech extolled the virtues of free trade. She must. The UK is about to be dumped into the wilderness of having no trade treaties at all. May is facing the likely rejection of her Brexit proposals by a disunited Europe and is cleverly making a virtue out of a necessity by threatening to turn the UK into a free-port, like Hong Kong or Singapore. This is not as ambitious as it sounds, as duties add less than 7 per cent to revenue, although in a country with a bloated welfare state and a deficit of 8 per cent of budget, taxes would have to go up.
In the other Davos corner was the billionaire Antony Scaramucci, trade adviser to the billionaire Donald Trump, who talked his bosses book by repeating that current trade deals favour everyone except the United States. Trump’s first moves have been to attack trade by unwinding deals that have taken decades to negotiate. If it sounds like a bar room rant, calculated to win votes, it is – although worrying when ranted in power.
Trump calculates that he can get better trade deals – he probably can, but at the expense of free trade. Free trade works because of the Economics 101 rule; “The Law of Comparative Advantage” – it is the give and take of trade that makes everyone wealthier. Trump’s business policy has always been 10 for me and none for you. That works when you are a big fish in New York real estate but he is now way, way out of his depth.
The chattering classes and the teenage scribblers are wrong in assessing the Trump and Brexit victories as a victory for the little guy against globalisation. There is no doubt that the JAMS (“just about managing”), who have suffered with almost no increase in real wealth over the last few years, rightly resent the multinational corporations. But it is not the result of open physical borders – it is open digital ones.
The damage to “Joe Voter” has been done by technology, which has deskilled work by replacing even complex jobs. The result is that if you own labour (as most of us do) your job has been deskilled and frankly you don’t deserve any more money for the work that you do. And, by the way, your job can now be done by a million more low-skilled people around the world.
The Federal Reserve’s low interest rates have also favoured the fat cat owners of capital who can borrow lots of money cheaply to employ the ordinary, labour-selling worker, who has no collateral to borrow.
Globalisation will continue regardless. Australia might lead the conclusion of the Trans Pacific Partnership more successfully as a 10 minus 1 – without America. Trade is like water flowing around the rocks in the river; progress might be slowed, but it will not stop, it will merely adjust.
So at Davos this year the politicos, Xi, May and Trump all talked up their own book as they talked to their own constituencies – but few were in the mood to listen.
Richard Harris is a veteran investment manager, banker, writer and broadcaster and a former politico. www.portshelter.com