Home / Opinion / Online-views /  The year when the old order began to unravel

2016 may well go down as a watershed year in history. It was the year when contradictions in the global economy were finally forced out into the open. It was the year of Donald Trump, the year of Brexit. It was the year when the restless masses in advanced economies, fed up with a stuttering economy on the one hand and smug homilies of the liberal establishment on the other, started a political backlash against globalization and immigration. It was the year when the old order started to unravel.

Since the nineties, with the opening up of the formerly statist economies, globalization has been the mantra that was supposed to deliver growth and prosperity for all. And it did deliver stellar growth to Asia, enabling some countries to join the ranks of the developed nations within a generation and others to substantially reduce poverty. But the vast increase in the global labour force also held down wages in the advanced economies and reduced labour’s share of income. At the same time, the rise in immigration ignited racial tensions and led to the revival of nationalism and the rise of the far right.

For a time, these economic and social fissures were papered over by keeping interest rates low and stoking a debt-fuelled boom, especially in housing. In peripheral Europe, fiscal deficits were ramped up to pay for social welfare programmes. At bottom, though, a huge question, hastily smothered, remained: now that the emerging markets could supply skilled and educated labour at a fraction of the wages prevalent in the West, could the high-cost developed nations compete while carrying the burden of the welfare state? And how could these democratic societies deal with the whittling down of social welfare? Those questions, with all the social turmoil that they imply, came out in the open when the financial bubble burst in 2007.

The upshot: nine years after the great financial crisis, the backlash has finally begun. The masses in the developed economies are now raising their voices against what they see as a steady drain of jobs to immigrants and across the border. They are demanding that their companies create jobs at home instead of halfway around the globe. They are fed up waiting for the promised good times. Political and economic nationalism is on the rise. The old hypocritical elite has been shown the door, the gloves are off and to quote Marx, ‘man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind’

Consider that, according to the International Monetary Fund (IMF) database, the per capita income at constant prices of Austria, Belgium, Denmark, France, Greece, Italy, Netherlands, Norway, Portugal, Spain and Sweden were all lower in 2015 than in 2007. For the UK, per capita income at constant prices was higher by a mere 0.8% in 2015 compared to 2007. For the US, it was higher by 3.5%. And if the growth of per capita income is so dismal, consider what income growth will be for the working class. A new study on economic inequality in the US by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman says that from 1980 to 2014, the share of income received by the bottom half of the population fell from 20% of the total to just 12.5%.

The IMF has continued to mark down its estimates of global growth. And this is the state of affairs after almost limitless monetary stimulus. It’s little wonder then that most people are deeply sceptical of the abilities of the old elites to get them out of the mess.Nor are emerging markets doing much better. Tepid growth in the advanced economies has cut the wings of the export-oriented growth strategy pursued by Asia’s ‘flying geese’, bringing them crashing down to earth. The slowdown in China has led to lower commodity prices, which in turn has led to slower growth in commodity producers all over the world, from Brazil to Russia, though there are now signs that commodities may finally be turning the corner. Oil producing nations are desperately trying to shore up crude oil prices. Trade growth has faltered. The IMF and the Bank for International Settlements have warned of the rise in debt levels.

As economies falter and fissures within societies grow, charismatic ‘strongmen’ politicians have positioned themselves as saviours who will rescue them from an effete, corrupt and incompetent establishment. They range all the way from Trump in the US to Modi in India to Duterte in the Philippines to Xi in China to Putin in Russia and Erdogan in Turkey. In a world grown disenchanted with the old ideologies, maverick strongmen are seen as the only hope. It is another matter altogether if the fond hopes placed on these messiahs will bear fruit.

We have seen a similar movie before, in the last century. The period before the First World War was also a period of globalization, albeit with the UK as its leading light. We all know how that story ended. So, as 2016 ends, we are faced with a stagnant world economy, slowing world trade, more protectionism, growing inequality, rising nationalism, increasing policy uncertainty and a motley crew of maverick strongmen steering the ships of states. It’s a brave new world.

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