Investing without foresight invites significant risk to client portfolios. As fiduciaries, we have an obligation to explore how current trends may impact our collective economic future, and in turn, how they may affect our investment strategy. Combining research with independent thinking leads us down exciting roads, and in our current environment there are significant, sweeping developments that provide context for our approach.
The key trends today include the growth of globalization, aging demographics, the acceleration and adoption of technological change, and the effect of these factors on the world populace. Critically, though, the overarching response to these drivers is an unwinding or devolution of globalization—a return to isolationism among the world powers.
In researching an expanded view of these issues, I focused primarily on insights from noted economists and policy strategists Parag Khanna, Peter Zeihan, Joseph E. Stiglitz and Mohamed A. El-Erian—all of whom have extraordinary insights, academic pedigree and senior global policy experience. In Zeihan’s view, as the world devolves, at least the United States will be a good place to live and invest. That’s not to say that our financial markets and economies would be in for smooth sailing. I’d expect just the opposite, with high volatility creating long-term opportunities.
Only Khanna seems overtly optimistic that the current state of world globalization will not only deliver a better standard of living to the world populace but accelerate towards what could be the next Renaissance. As technological change enhances our abilities to become more productive, as renewable energy technology improves and replaces oil, as interdependence on resources and communication increase exponentially, the world becomes a much better and safer place. I would position Stiglitz and El-Erian as hopeful that globalization can be saved.
The caveat is these outcomes are dependent upon leadership, vision and policy that get implemented in a timely manner. In my opinion, it is hard to say with any intellectual honesty that we can expect that to be the most likely case.
While there is no way to state unequivocally which way the future will trend, exploring possible outcomes can serve as a directional checklist as we gauge our path. There are myriad events that play into the issues; with that in mind, here are three questions that herald the decline of globalization:
1. Why did Populist movements in France, Italy, England and the United States make such dramatic strides in upsetting the global order?
Nobel Prize Winner Stiglitz wrote, “The disparity between what was promised from globalization and what was delivered has angered many and led to a growing distrust of the elites—in politics, media and academia.” (Globalization and Its Discontents Revisited, Anti-Globalization in the Era of Trump, 2018)
This inequality is what leads to discontent and politics of anger and populism worldwide. It seems a straightforward assertion that if large segments of the population are worse off, they will vote with their wallets and elect those who claim to have a better way forward. Thus, we arrive at today’s world of Populist politics, a world in which the United States incites trade wars, becomes more confrontational and protectionist, and is less supportive of allies around the world.
2. How will immigration policy play into cross-border growth?
Mass migration has become a common theme over the past decade, with huge swaths of regional populations displaced due to war, drought, and untenable economic conditions. There are tremendous cultural and economic implications of introducing a significant demographic shift into a country in a short time frame. Done thoughtfully, it has the potential to forge unity and expand access to skillsets and labor. Done without an emphasis on societal integration, it has the potential to increase economic disparity and lend further momentum to isolationist polices.