Populism, please meet globalism and capitalism (and everybody be nice)
One of the big discussion points at Davos is how to deal with globalisation and improve capitalism. This is something of a surprise. Davos is notionally the pinnacle of capitalism, the place where the plutocrats of the world strut their stuff, rub shoulders with the world’s political leaders, and meet their mates from across the world and cut enormous deals.
Yet the happy notion that globalisation and capitalism will naturally bring good has been rocked by a host of things that weren’t supposed to happen. Some are obvious: the election of populist leaders such as US President Donald Trump and the rise of populist parties all over the world.
Some are less obvious. The growth of world trade has stalled. For almost a decade now, the growth in international trade has more or less matched global economic growth. To the growing contingent of anti-globalists, this is good news. Since the supporters of Trump, for example, haven’t felt the benefits of global trade themselves, it’s happy days.
The problem is that it isn’t. Over time, increases in global trade have propelled global growth. The economic benefits of global trade are undeniable. The statistical match between economic prosperity and global trade is highly, highly correlated. But the problem is obvious: international trade is disruptive. Steelworkers in the US industrial north get displaced by ambitious Chinese cities where people work seven-day weeks and earn a pittance. Until the disruption started causing political dislocation, it was a working side-trend. Now it’s full focus.
The wages workers earn underpin corporate earnings; if they don’t grow, it’s hard for companies to increase profits without reducing costs further, and before you know it you could end up being in a perpetual, intensifying downward spiral.
There are other problems too. As in many other countries, corporate profits in the US are at an all-time high relative to corporate turnover. Yet aggregate wage levels have been static for decades.
This opens up a whole new set of problems, including a contradiction within modern capitalism itself. The wages workers earn underpin corporate earnings; if they don’t grow, it’s hard for companies to increase profits without reducing costs further, and before you know it you could end up being in a perpetual, intensifying downward spiral.
This whole debate, in all its complex dynamics, is moving centre-stage. Recently, Larry Fink, the CEO of BlackRock, the world’s largest asset manager with $5.7-trillion in assets under management, called for a new model of corporate governance.
In a letter to CEOs, Fink again brought up the issue of interminable quarterly results presentation and asked CEOs to focus rather on long-term goals. “Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the licence to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.”
Quite something from the pinnacle of global capitalism.
One of the events at the World Economic Forum took this on. Henry Blodget, the editor of website Business Insider quoted from Fink’s letter in the introduction to a session called “Towards Better Capitalism”. It was a great panel, worth watching in full. To me, the most impressive was Indra Nooyi, who has been CEO of PepsiCo for nine years.
The company’s share price is now at an all-time high, but for the first five years of her term, it lagged behind Coke. She said: “If you are doing something really strategic and transformative, it always evokes criticism. So I always said I have the results to show for long-term management but the scars to show for short-term management.”
There was lots of discussion about quarterly results, and a general agreement that somehow investors, investment houses and managers need to find a way to balance the two. Mark Weinberger, global chairman of accounting firm EY, made the point that the key problem is there is no agreed way between asset owners and asset managers to measure long-term strategic choices. Managers need to find a way to explain their long-term strategic choice, otherwise there is nothing to fall back on other than quarterly earnings.
Nooyi said: “I think finance and accounting have trumped strategy, excessively. The whole world is ratio-driven and accounting-driven, even though the accounting rules are not clear. They will blindly look at the numbers, put out a little spreadsheet and that to them is a strategy.”
Yowzer! Anyway, fun debate.
With Eskom’s economic state now on everybody’s mind, one of Ramaphosa’s main jobs at Davos would be to try and square things with foreign funders.
So what about the South African delegation? As we all know, the delegation is being led by newly elected ANC leader Cyril Ramaphosa, who also attended last year’s summit — but what a difference a year makes.
Last year, the South African delegation bickered about whether “radical economic transformation” (RET) signalled to the world South Africa was taking the banana republic route or whether RET was in line with the WEF’s “inclusive growth” thrust. Ramaphosa argued, or tried to argue, it was more or less the same thing. In the intervening period, it’s become obvious that they are not, but it’s one of those seemingly everlasting imponderables of an ANC economic policy that tries to be everything to everyone and ends up satisfying no one.
The International Monetary Fund is going to be a critical component of this debate, and with Eskom’s economic state now on everybody’s mind, one of Ramaphosa’s main jobs at Davos would be to try and square things with foreign funders.
He did manage to get a meeting with IMF MD Christine Lagarde, and the IMF, unusually, did put out a statement on the meeting. But how do you interpret it? Lagarde made the obvious points: South Africa has been moving in the right direction, but efforts need to be sustained and business confidence needs to be boosted. I read that as a shot across the bows — but a friendly one, if such a thing is possible.
Mnangagwa said the land issue was now a thing of the past, so the disputes with the UK on that topic were also history; and he would be happy for Zimbabwe to rejoin the Commonwealth.
It’s very obvious at this WEF that South Africa is not the only Southern African country going through massive changes. Emmerson Mnangagwa, who in November ousted Robert Mugabe as president of Zimbabwe after 37 years, was a notable figure of interest.
His interview with the BBC’s Mishal Husain was filled with news: elections would take place at the latest in June, he said, and they would be studiously free and fair. He repeated that EU election monitors would be welcome. The land issue was now a thing of the past, so the disputes with the UK on that topic were also history; and he would be happy for Zimbabwe to rejoin the Commonwealth.
“We want to embrace the international community, and we want to the international community to accept us,” he said. Pressed to apologise for the Matabeleland massacres, he demurred but said a “truth and reconciliation” law had already been passed to examine the issue. Indigenisation would continue to apply to platinum and diamonds, but the rest was open to negotiation. All strong stuff.
And then there is João Lourenço, president of Angola, who is also in Davos to woo investors. The assumption he would be the stooge of former president José Eduardo dos Santos, who ran the economy like a family business for 38 years, has turned out to be wrong. Dos Santos was something of a model for President Jacob Zuma’s strategy, but Lourenço has booted Dos Santos’s children from senior positions and talked about combating corruption. Amazing.