There were a few tectonic shifts in global polity and economy over the last 40 years. Every major change, good or bad, has some consequences and in most cases, are understandable only in hindsight. Over the last 40 years, the world around us changed beyond recognition in almost every conceivable way. The achievements and failures of the period can be broadly summarised into:
1) Unprecedented advancement of technology that changed the way we live, communicate, work, socialise, entertain ourselves
2) Our self-identity and thought patterns are shaped, honed or blunted and, to a large extent, manipulated and shaped by Big Tech, mass availability of affordable electronics, cheap data and the ubiquitous media-on-tap on a phone or through a remote control
3) Power of information technology, globalisation of trade and cheap labour from China, South Asia and Southeast Asian countries suppressed price of goods and services (lower inflation in traded goods) but also created a significantly large number of relatively prosperous labour pools in these local markets, which served as factory or back offices for the developed world
4) It disproportionately rewarded capital over land or labour, resulting in soil erosion, river pollution and overall environmental degradation, leading to climate change and a very wide gap of income and wealth between the rich and poor
5) It reduced inflation in developed markets but also reduced labour’s bargaining power (as jobs can be easily offshored or automated). It also reduced interest rates due to wealth accumulation in the hands of few and lower wage or income growth of the toiling or unskilled people, though capital is sloshing around the world
6) Though the wealth gap widened, millions were rescued from abject poverty. The poor didn’t become poorer in the period and their economic condition mostly became better than before. This sobering effect was most pronounced in countries like China, India, Bangladesh and other Southeast Asian countries.
7) In many cases, foreign direct investment helped in technology and know-how transfer to developing nations; privatisation of state-owned enterprises lowered fiscal burden on governments and improved public services (like telecom or airlines in India).
8) The individual became the sole unit of identity instead of community, family, society or country. The outlook towards society and individuals was different in the earlier era, as captured in popular catchphrases such as solidarity, liberty, fraternity. These were replaced with individual merit and individual capacity to survive or flourish in the changed system. We learnt selfishness is virtue, greed is good. Citizens had very little influence over an efficiency-focussed technocratic governance system and they receded from being an active citizen to just an atomised consumer of myriad goods and services. The idea of happiness got a fresh meaning. The more your ability and choice to consume, you were supposedly happier. It created the social epidemics of loneliness, depression and family disharmony, especially in the developed world.
9) The power of sovereign governments blurred in front of the diffused power of multinational corporations and technology giants.
10) In spite of huge wealth creation in the period, public goods like health, education, skill development, public transport and social safety net shrunk significantly due to lack of fiscal power of sovereign states. Corporate tax cut, offshoring of wealth by the rich, corruption, ossified & indifferent bureaucracy and competitive politics without competing ideology hollowed out the state power to a large extent. In effect, that has reduced the power of democracy to change the direction of politics or economic policies. This further accentuated the alienation of people from government, society and community.
This world order created over the past 40 years was first broken apart during the global financial crisis (GFC), which overnight changed the fortunes of many individuals and families, like in a wartime. In its aftermath, with all the wisdom, governments bailed out the same entities, instead of finding ways to directly help the people whose fortunes were ruined and lives were unsettled. This created more problems.
The original proponents of these free market theories — namely Edward Von Mises or Frederick Hayek — knew the limitations of their ideas (they were academicians not ideologues). But these ideas had the backing of powerful elites and owners of property and capital. So, over time, these developed into an uncritical belief system for the general population. When an idea suits the elite, it can gather enough academic and intellectual patrons to ratify it through those in colleges, universitys, think tanks, media and NGOs. It’s the nature of any ideology — it can see some things clearly, keep certain things out of sight or pretend those don’t exist. Just like the Communists glossed over the idea of justice, human rights and personal liberty under the coercive power of the ruling elite. Yet, when communism was fashionable, it churned out scores of votaries from the academia, intelligentsia & think tanks.
The resentment and disillusion GFC created gradually changed the politics over time in the past decade. The inactive, enfeebled “common man” felt political debates and decisions no longer spoke for them or cared for their well-being. The incumbent political leadership perceived to have lost it legitimacy and became seen as corrupt, incompetent and dysfunctional. And angry people looked for radical solutions. In the absence of an alternative political direction or ideology, they were attracted to charismatic leaders. Slogans, symbols and sensationalisation became more precious in the politician’s armoury than facts, figures and reality.
In this backdrop, many major changes are happening in the global political and economic landscape over the last few years. These changes will shape the future. The fight between Big Tech and sovereign governments over control of digital space; income support unheard of in human history being distributed to people with no strings attached, to tide over the pandemic crises in richer nations; the massive infrastructure push to improve public service and public goods in the US and Europe; the power struggle between incumbent USA and a growing China over global rules of engagement and supremacy; the unanimous support from every side to control climate change, irrespective of economic costs and consequences; the acceptance by organisations like International Monetary Fund that 40 years of neo-liberal experiment increased inequality and jeopardised durable long-term global economic expansion; the proposal and relatively weaker resistance to higher taxation of corporate and very wealthy individuals in USA — all these portends a future different from the immediate past.
The Covid pandemic has hastened the process of change. We have seen that without massive government intervention, it is almost impossible to handle the economic and health costs of the pandemic. Stimulus cheques in rich countries to free food for large masses of people in poorer nations to free vaccination — everything depended on massive interventions by the governments. The market abjectly exposed its inadequacy to serve in these situations.
Artificial intelligence, genome sequencing, 5G technology and robotics can make many unskilled people unemployable and almost make a chunk of the workforce redundant. Even if everyone gets the requisite skills, employing them gainfully would need a very different resource-allocation mechanism. No government or sovereign state can overlook this grave crisis for many years without social upheavals. How they respond to these challenges will be critical.
As a market participant, we have seen an unprecedented prosperity for owners of assets and capital. The entire investment industry and the associated stardom of the famous and ultra-rich investors operated under a specific political economic social backdrop that may not remain so in the days ahead.
It is always better to be aware of the larger ecosystem in which we operate than to remain oblivious of it. Our job is to quickly adjust to reality rather than to be blindsided by it.
(The author is the Founder & CEO of Aveksat Financial Advisory)