Yellow vests and the Davos freeze
Are Looming global economic problems understated both internationally and at home?
Of the many international gatherings addressing global economic issues, the World Economic Forum at Davos has certainly eclipsed all others in attention, recognizing its power as a gathering of the business and bureaucrat elites; a platform for brandishing national investment begging bowls; powerful networking opportunities and a specific focus on well-researched issues on the agenda. It is easy to get caught up in the hype and façade of importance, both as a journalist or other representative. To be sure, many emerge with successful network agreements and exclusive interviews in the media, but upon reflection and with some jaundice that accompanies age, I cannot say any of them have emerged with real practical solutions that would shift the global economy off a dangerous trajectory.
Bloomberg’s review on what participants took out of this year’s meeting in Davos indicates that it will not be much different. The tone was set not by the planned agenda, but by a distributed letter by investment mogul, Seth Klarman who wrote: “It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions.” That sentiment was starkly illustrated by the absence of some key figures such as Donald Trump; Theresa May, and Emmanuel Macron: against the backdrop of a government shutdown in the US, Brexit in the U.K. and yellow vest protests in France.
Intensified civil unrest, in which the yellow vest protests appear to be growing and spreading, run counterintuitive to the findings of the latest Edelman Global Trust report. They have found a marginal improvement in global trust. This anomaly is even greater for South Africa. While the general population is largely still distrusting at 45%, this is 7% lower than the previous year’s distrust measurement. The improvement in the informed group is even higher at 8%, with more than half now trusting their institutions.
While this improvement may be attributed to Ramaphosa’s presidency, it contradicts research which shows that 2018 had the highest number of civil protests on record. We may be underestimating the true dimension of the civil unrest in South Africa because of its localised and scattered nature both in time and place. If one were to give each protestor a yellow vest and get them out in protest at one place and at the same time, they could eclipse the number and intensity of the French action. The research also could not capture the fall-out from the Zondo Commission’s corruption allegations and only time will tell whether the open catharsis will impact negatively or positively on trust – particularly investment confidence.
What is telling about the Edelman report as perhaps the real issue, is the biggest gap ever between global trust of the informed public as against global trust of the general population. The 16 point gap clearly reflects class marginalisation between elite and the general population.
Bringing global trends back home, it is a moot point and to my mind quite likely that all of our predictions and expectations for the next year or two will be overwhelmed again by global events. The dangers they present are being mostly understated. This year, 2019, seems particularly precarious for forecasters. In short: an extremely volatile year with little improvement in growth prospects. At home that volatility will no doubt be enhanced by the national elections and one cost we often ignore in elections is the price that has to be paid over time in inflated expectations which simply cannot be met.
Global growth forecasts are modest at best, and the world is beset with many uncertainties; including the continuing prospect of trade wars; a faltering Chinese economy against its mounting debt; Brexit; U.S. interest rate uncertainties; and the intensifying and spreading of civil unrest. One could go on, but for me the big storm still hovering is the mountain of global debt and the prospect of another major financial crisis sparked no doubt by a big financial institution collapsing.
The reversal of decades of low interest rates in the United States, the only viable mechanism to slow debt growth and counter inflation, could be the opening of a Pandora’s Box that will rewrite the economic text books. The Fed’s cautious and slow-paced approach to raising rates reflects this, but at the same time it creates an opening for market speculation around each decision and it’s debatable whether the Fed doesn’t send out mixed signals at times to manipulate these markets.
Both inequality driven civil unrest, and the growing threat of global debt were mentioned by Klarman in his letter. He could have done so at Davos last year – and the year before. Indeed these threats have been present for a number of years. It is inconceivable that they have stagnated or diminished over the years. The fact that the World Economic Forum has not placed them at the top of their own agenda each year of the past decade raises the valid question of how long Davos will remain relevant as a force for addressing global issues.
More ominously, are there answers to be found?