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6-Populism and the challenges for Business

The crash of socialist economies unable to allocate resources efficiently changed the World. It was the victory of economic and political liberalism and a “weakening of the State’s capacity to manage a nation’s affairs” . The world economy became dominated by finance creating a gap between those with the skills to thrive in a global market and those who could not adapt. “Social fissures” started to emerge in the West and gave rise to what is called populism . The 2008 crisis was the inevitable result of policies and structures that are now weakening.


“One driver of discontent is increasing trade integration and technology” . Populism (in the West) can be seen as a reaction to the globalization of value chains and rise in automation. Comparative advantages achieved internationally are good for firms’ efficiency and productivity but have also resulted in mass unemployment in industries characterized by repetitive tasks and low skilled labour. Populists forces now risk changing this process of global convergence of the economies based on technology (efficiencies) and interdependence. If a De-globalization process begins this would imply a new environment for business. For example, emerging countries will be hardly hit because they are import dependent and will have to reassess their long-term assumptions. Business decision will not be taken on the sole logic of market efficiencies, but politic consideration will come into play as well. There would be a relative decline of global cooperation as a business model and a less cosmopolitan Society will emerge. “Anti-trade and anti-immigration policies will reduce globalisation by making it more costly for corporations” that will reconsider their international supply chain.


Another challenge facing business comes from within. Political Trust in the West has been slowly eroded and the political life has been polarized. The growing feeling that citizens have no say has been compounded by the trend towards political globalisation and the delegation of power to supranational and intergovernmental organisations. “The centre vote share has collapsed across advanced economies by an average of 12% since the 1990s” (Marvin Barth, 2017) in favour of third parties that share community and identity values. A deep divide between “somewheres” and “anywheres” has emerged .


”As expected, there is evidence that falling support for the political centre is related to stagnant median and “real” incomes . Inequality is not an accident. When the rate of return on Capital exceed economic growth(r>g) wage stagnate, excessive accumulated wealth destabilizes Society and entrepreneurs become rentiers ( Thomas Pichetty, 2013).Economic monetarism is coming to an end; The secular stagnation of the West (low interest rates and low growth) is a “result of central bank and government policies focused on keeping at bay inflation instead of encouraging full employment”…meanwhile, everyone in the system is incentivized to take on more debt” (John Stepek, 2017).The pursuit of sovereignty might mean that fiscal deficits may soon begin to expand and this will be a game changer for Business. After 40 years MNS may find themselves into an environment of rising interest rates and more strict regulations. An environment where pendulum swings back from capital to labour will imply a focus on longer-term investment instead of short-term, improved productivity and wages, and a move away from debt. Companies which use financial engineering and poorly-paid workers will struggle (John Stepek, 2017).


An age of globalization has developed in the Western Society a borrow and spend attitude thanks to low interest rates. People and Business in the West got accustomed to living beyond their means (consumerism). An age of de-globalization could bring back the more frugal save and invest attitude unless the real causes of economic stagnation (low productivity and real income growth) are solved. “Such prospects would elevate the potential for earnings growth for corporate sectors and also reduce the equity risk premium for stock markets, which would, in turn, support higher valuation levels” (Balentine, 2017)


To overcome secular stagnation, governments must promote productivity growth by cultivating entrepreneurship and competitiveness within their respective economies.

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