Global Economist, Dambisa Moyo

The world has changed so much in the 21st century that its problems require a new set of policies and reinvigorated institutions, says economist Dambisa Moyo.

“I don’t think we can look out into the 21st century and assume that the world is going to keep growing at the same pace,” Moyo says. “We are facing some unique factors, and there’s a confluence of factors that is hurting us economically like never before.”

Don’t believe the stock market euphoria, says Moyo, who will deliver a keynote speech about her economic outlook at Financial Advisor’s 2017 Inside Alternatives Conference on October 23 in Denver. The U.S. economy is unlikely to grow much moving forward, she adds.

Moyo, a widely published expert on economic, geopolitical and technological issues and a three-time New York Times best-selling author who sits on the boards of several public companies, says the U.S. economy has a better than one-in-three chance of experiencing a recession in the next 12 months.

“The [International Monetary Fund] has downgraded growth prospects for the U.S. and U.K., and when we think about the way business cycles work, within every eight years or so industrial countries are due for a recession,” she says.
“We’re due for a recession from a business cycle perspective. We should ask if we are on borrowed time.”

Even if the U.S. economy avoids a recession in the near term, growth is likely to decline worldwide, driven down by a confluence of long-term global issues, she says.

Demographic change already dampens the long-term prospects of the developed world, where fertility rates have plummeted. Moyo believes such changes will continue to spread to developing and emerging markets.

“It’s clear that the IMF didn’t expect that we would see the rates of growth that we saw before 2014 ever again, and that’s emblematic of the challenges the world faces,” she says. “I do not think many emerging market countries will be able to meet the 7% per annum growth which is important to double per capita income, which means they will struggle and there will be implications for the global order.”

Simultaneously, technological disruption threatens up to half of the world’s workforce with unemployment, she says, adding that disruption could create an entrenched, unemployed underclass as technology displaces service industry jobs.

Worsening inequality is already stratifying masses of people in the West by socioeconomic class and exacerbating political divisions. Underinvestment in education has reduced social mobility, she says, while globalization has led to the relocation of many manufacturing and industry jobs once held by middle-class Westerners.

“Policy makers aren’t prepared for what this will do to people old and young who aren’t going to be supported anymore in the labor force,” Moyo says. “As economists, we can take a positive view and say just because we’re not sure what sector will eventually absorb this workforce, especially the unskilled, today doesn’t necessarily mean it won’t happen. But a public policy maker can’t afford to not have a plan.”

Moyo believes the scarcity of natural resources will create new competition between regions, countries and peoples that could spill over into conflict.

As these structural issues deepen, many institutional managers are already beginning to de-risk, and individual investors are finding fewer places to seek low-risk growth and income, Moyo notes.

“Many asset managers earlier in the year decided to sit on the sidelines. [They] moved out of equity, and looking back people are saying that they were kind of dumb to do so because the market moved to record highs,” Moyo says. “It’s a little too simplistic to say that, given the global political and economic challenges and the structural headwinds we’re dealing with.”

The world is turning away from globalization during a period when international cooperation and coordination is crucial, she notes. More than 600 discriminatory trade policies have been introduced in the past 10 years, many of them by the U.S. and Europe, she says.

The United Kingdom’s vote to leave the European Union and the election of nationalist figureheads like President Donald Trump are accelerating the anti-global push, says Moyo. Many countries once engaged by the U.S. are beginning to turn inward and, according to the World Trade Organization, global trade has been in decline for the past decade.

“The rhetoric around protectionism has reached a fever pitch,” she says. “[French President Emmanuel] Macron has pushed the idea of Europe first. ... There’s been an increase in home bias, and that trend should continue in a world that’s more uncertain, where growth is more precarious.”

At the same time, the West is beginning to raise interest rates, which may cause American investors to keep more of their money at home, she says. As a result, the flow of money in and out of the U.S. is in a persistent state of decline, as is international lending, and Western money is flowing out of emerging markets.

“Companies are becoming more siloed. They’re moving away from the globalized model,” she says. “Companies heavily focused on being disaggregated, like a Unilever Pakistan or an Anheuser-Busch Belgium, will do better than those who are still back-footed in a globalization agenda.”

Moyo warns that developed market debt is an issue that must be addressed with a long-term solution. While the Congressional Budget Office predicts that the national debt will double over the next 30 years, debt held by private companies has also ballooned during the recent period of low interest rate policies. Simultaneously, American consumers have racked up higher credit card, student loan and auto loan balances.

The slowing global economy occurs at a time when the social, political and economic institutions established by the West, including the World Bank, the World Trade Organization, the IMF, NATO and the U.N. are fighting for their credibility.

“The people in emerging markets have said, ‘Wait a second, the crises we are facing right now are largely coming out of the West,’” says Moyo. “Debt burden, political instability, the massive financial crisis—all of these problems come from the West. Might there be some other pathways in terms of ideologies that can generate long-term growth? There’s also a belief that income inequality could be a direct artifact of capitalism. Taken together, there’s a growing skepticism about democracy and market capitalism.”

Moyo argues that traditional global institutions are worth salvaging, but should be distanced somewhat from the Western political and economic models they were founded upon and incorporate more ideas from emerging market countries.
Western countries might also need to be more flexible with their strategies to foster growth and development, she says.
“Inequality is worsening in the U.S. and improving in China, and part of the reason is that in the West we tend to despise any form of government intervention,” she says.

Ideological strategies, like the implementation of free-market capitalism or command-and-control socialism or communism, are unlikely to restore economic growth on their own, she says.

Successful policy won’t stem from pitting free markets against command-and-control philosophies, or democracy against other forms of governance, she says. Solutions are more likely to come from blending both ideals, says Moyo.
“We need some sort of third way, if I can use that terminology. But what that looks like ultimately is up for grabs,” she says. “What is clear to me is that” ideology for ideology’s sake is the enemy of growth.

Western policy makers, public and private, are also bound by short-term concerns, she says. In the U.S., she says, legislators are constrained by their constituents via election cycles that force them to favor quick, temporary fixes to large structural problems that may be easier to pass than complicated, long-term solutions.

Companies are also constrained into short-term thinking by their shareholders, Moyo says. In the West, public companies are encouraged to plunge ever higher levels of cash into dividends and buybacks, she notes, just as technological disruption threatens their businesses.

“There are companies sitting on piles of cash, issuing dividends that far overreach their earnings,” she says. “That’s underscoring the concerns by a lot of corporations that they aren’t able to reinvest in a growth story. Then there are also concerns about public policy.”

Plans to enact tax reform that would repatriate offshore capital could put billions of dollars into the coffers of American companies, says Moyo, but much of that money could be paid out in dividends and buybacks, rather than invested in economic growth.

Moyo believes that none of the short-term proposals before U.S. policy makers address long-term concerns like technological change and changes in demographics such as an aging population and decreased fertility rates. It’s also unclear to what extent policies like increased infrastructure spending and tax reform will be able to stimulate growth, she says, noting that Japan spent $6.3 trillion developing its infrastructure during its lost decade, yet generated very little economic growth.

“The irony is that we do need infrastructure,” she says. “It’s the backbone of an economy. You have to be able to move things through ports and railroads and roads.” She points out that the American Society of Civil Engineers recently gave U.S. infrastructure a “D+” grade. “That does not comport with a developed country looking to increase its economic growth rate.”

In the short term, some sort of fiscal stimulus might be necessary to enhance productivity, but the long-term global economic headwinds loom large, she says.

It is critical that American policy makers invest in social policy and education to support long-term economic growth, says Moyo.

“We need policies to address all the economic factors like debt, income inequality, demographics and technology,” says Moyo. “You can’t fight on one factor alone. There’s an array of factors challenging the economy as a whole. While a fiscal stimulus and/or some form of tax package is necessary to me, it would be foolhardy to say it’s sufficient.”