Seventh-Inning Debt Stretch
By John Mauldin
Know Thyself
John Mauldin
Chairman, Mauldin Economics |
Seventh-Inning Debt Stretch
By John Mauldin
John Mauldin
Chairman, Mauldin Economics |
We are living in an age of unprecedented risks
Business faces political upheaval while politics grapples with disruption
Henry Paulson
Over the course of my 50-year career, with the exception of the 2008 financial crisis, I have never seen the public and private sectors buffeted by so much risk. These new risks are not financial, but they are unprecedented in their character, not just their scope.
Businesses face heightened political risks. While this is not new, in the past such risks simply shaped the context in which global firms operated. Successful companies could navigate through them. Now, politics threatens to disturb the foundations of the global system.
Governments, meanwhile, confront unprecedented business risk because the private sector generates so much disruptive innovation. Even authoritarian governments can no longer expect to exercise exclusive control over their domestic economies. This is not just due to hardware innovation. Communication and data flowing through privately controlled platforms have enabled social and political mobilisation that challenges the state’s role.
This week in Singapore, the Bloomberg New Economy Forum launches an effort to foster growth and development, especially in emerging markets. It hopes to help government and business better understand the risks each generates. A strengthened and sustainable global economy requires mitigation of these risks and joint solutions.
Three risks posed by government to business stand out. The most apparent is the power of populism and nationalism in advanced democracies. For a generation, market participants presumed these were emerging markets issues. Europe and the US were viewed as stable business and investment environments with robust institutions and predictable shifts at the ballot box among established political parties.
No longer. Today, advanced economies are generating the most disruptive political risks to businesses. Washington’s shift to protectionism is one example. But it is hardly alone: Italy’s fiscal choices could yet roil the markets. The need to build coalitions in Sweden and Germany, and the weakening of traditional parties, such as the German Social Democrats, looks set to do the same, as populist entrants erode political norms.
A second risk of regulatory chaos has already begun to constrict opportunities for cross-border transactions. That is ironic, as global mergers and acquisitions have hit a record at $3.3tn in 2018.
But turbulent politics are making antitrust issues more complicated and uncertain in the US, Europe, and now China. Regulators weigh in on major transactions using different criteria, often with little transparency. In recent years, we have seen competition regulators outside of a multinational firm’s domestic market kill some transactions, delay others for many months and force divestures when there seemed to be little evidence of monopoly.
A third risk is the increasingly elastic definition of “national security”. Regulators once construed it narrowly to avoid disrupting markets. Now government competition around security issues, not least between Washington and Beijing, threatens economic integration and has blurred the line between defence and commerce.
National security reviews are disrupting trade, investment, and supply chains. More important, the threat of enhanced regulatory constraints is making it almost impossible for some multinationals to plan for the long term.
The landscape is also changing for governments, including both democracies and authoritarian regimes. Multinational business has changed in recent years and corporate executives have many more levers they can pull.
That means governments must navigate business risks, lest they find their hands tied or their objectives thwarted. “Multinational” companies are just that. They can move headquarters, diffuse operations and disperse capital.
States have some tools to prevent this, including strict capital controls and tariffs. But, as US president Donald Trump has discovered with steel tariffs, companies may respond by investing in operations overseas. This turns nations into rivals. Competition for capital investment has sharpened: businesses play countries off against each other, enticing them to offer incentives.
This risks a race to the bottom in which corporate profits determine policies.
That highlights an even bigger business risk to governments. Chief executives can mobilise employees and customers and they have the money to back campaigns. So they are driving political and social change. But they are also motivated by market forces. They will invest where political risk is manageable and they can achieve the best shareholder returns. Politicians must ask whether a laissez faire policy that lets business do this is in a nation’s interest.
Government and business have different goals, divergent incentives and answer to distinct constituencies. But they have one thing in common: they need to grapple with risk. That means they are stuck with each other.
Successful governments will protect their nations from business risk while offering an attractive home for successful multinational companies. Astute businesses will adapt to changing political landscapes. Sometimes the two sides will co-operate. More often, they will win or lose by finding opportunities as they assess, manage and navigate the risks they pose to each other.
The writer served as US Treasury secretary 2006-09
The Dollar Shortage Is Back
Scarcity of greenbacks in the global financial system is a hidden risk for emerging markets
By Jon Sindreu
Grappling With Globalization 4.0
The world is experiencing an economic and political upheaval that will not cease any time soon. The forces of the Fourth Industrial Revolution have ushered in a new economy and a new form of globalization, both of which demand new forms of governance to safeguard the public good.
Klaus Schwab
GENEVA – After World War II, the international community came together to build a shared future. Now, it must do so again. Owing to the slow and uneven recovery in the decade since the global financial crisis, a substantial part of society has become disaffected and embittered, not only with politics and politicians, but also with globalization and the entire economic system it underpins. In an era of widespread insecurity and frustration, populism has become increasingly attractive as an alternative to the status quo.
But populist discourse elides – and often confounds – the substantive distinctions between two concepts: globalization and globalism. Globalization is a phenomenon driven by technology and the movement of ideas, people, and goods. Globalism is an ideology that prioritizes the neoliberal global order over national interests. Nobody can deny that we are living in a globalized world. But whether all of our policies should be “globalist” is highly debatable.
After all, this moment of crisis has raised important questions about our global-governance architecture. With more and more voters demanding to “take back control” from “global forces,” the challenge is to restore sovereignty in a world that requires cooperation. Rather than closing off economies through protectionism and nationalist politics, we must forge a new social compact between citizens and their leaders, so that everyone feels secure enough at home to remain open to the world at large. Failing that, the ongoing disintegration of our social fabric could ultimately lead to the collapse of democracy.
Moreover, the challenges associated with the Fourth Industrial Revolution (4IR) are coinciding with the rapid emergence of ecological constraints, the advent of an increasingly multipolar international order, and rising inequality. These integrated developments are ushering in a new era of globalization. Whether it will improve the human condition will depend on whether corporate, local, national, and international governance can adapt in time.
Meanwhile, a new framework for global public-private cooperation has been taking shape. Public-private cooperation is about harnessing the private sector and open markets to drive economic growth for the public good, with environmental sustainability and social inclusiveness always in mind. But to determine the public good, we first must identify the root causes of inequality.
For example, while open markets and increased competition certainly produce winners and losers in the international arena, they may be having an even more pronounced effect on inequality at the national level. Moreover, the growing divide between the precariat and the privileged is being reinforced by 4IR business models, which often derive rents from owning capital or intellectual property.
Closing that divide requires us to recognize that we are living in a new type of innovation-driven economy, and that new global norms, standards, policies, and conventions are needed to safeguard the public trust. The new economy has already disrupted and recombined countless industries, and dislocated millions of workers. It is dematerializing production, by increasing the knowledge intensity of value creation. It is heightening competition within domestic product, capital, and labor markets, as well as among countries adopting different trade and investment strategies. And it is fueling distrust, particularly of technology companies and their stewardship of our data.
The unprecedented pace of technological change means that our systems of health, transportation, communication, production, distribution, and energy – just to name a few – will be completely transformed. Managing that change will require not just new frameworks for national and multinational cooperation, but also a new model of education, complete with targeted programs for teaching workers new skills. With advances in robotics and artificial intelligence in the context of aging societies, we will have to move from a narrative of production and consumption toward one of sharing and caring.
Globalization 4.0 has only just begun, but we are already vastly underprepared for it. Clinging to an outdated mindset and tinkering with our existing processes and institutions will not do. Rather, we need to redesign them from the ground up, so that we can capitalize on the new opportunities that await us, while avoiding the kind of disruptions that we are witnessing today.
As we develop a new approach to the new economy, we must remember that we are not playing a zero-sum game. This is not a matter of free trade or protectionism, technology or jobs, immigration or protecting citizens, and growth or equality. Those are all false dichotomies, which we can avoid by developing policies that favor “and” over “or,” allowing all sets of interests to be pursued in parallel.
To be sure, pessimists will argue that political conditions are standing in the way of a productive global dialogue about Globalization 4.0 and the new economy. But realists will use the current moment to explore the gaps in the present system, and to identify the requirements for a future approach. And optimists will hold out hope that future-oriented stakeholders will create a community of shared interest and, ultimately, shared purpose.
The changes that are underway today are not isolated to a particular country, industry, or issue. They are universal, and thus require a global response. Failing to adopt a new cooperative approach would be a tragedy for humankind. To draft a blueprint for a shared global-governance architecture, we must avoid becoming mired in the current moment of crisis management.
Specifically, this task will require two things of the international community: wider engagement and heightened imagination. The engagement of all stakeholders in sustained dialogue will be crucial, as will the imagination to think systemically, and beyond one’s own short-term institutional and national considerations.
These will be the two organizing principles of the World Economic Forum’s upcoming Annual Meeting in Davos-Klosters, which will convene under the theme of “Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution”. Ready or not, a new world is upon us.
Klaus Schwab is Founder and Executive Chairman of the World Economic Forum.
This Myth About Gold Could Be Costing You Serious Money
By Justin Spittler, editor, Casey Daily Dispatch
ManCity and Paris Saint-Germain
How Oil Money Distorts Global Football
Five years ago, UEFA introduced Financial Fair Play, a set of rules designed to level the economic playing field in European football. But during his tenure as UEFA general secretary, Gianni Infantino went out of his way to ensure that Manchester City and Paris Saint-Germain avoided harsh punishment. By DER SPIEGEL Staff