BRIAN LUCEY: Brain Lucey: In a populist world, what could go wrong?

Looking back at 2016, it is hard not to think that there were tectonic shifts in the western economic and political system, even allowing for the tendency of us all to overweight recent events.

Ever since Cicero, politicians have been complaining “o tempora, o mores”, and we should have a healthy suspicion of the words, “this time is different”. But maybe this time is, in fact, different.

We have seen, in Brexit and in Trump, the rise of populism.

This is populism of a particular kind, however. It is populism driven not by poverty, not by loss of a war, not by anything specific. It is populism grounded in an inchoate sense that things used to be, and could be, better, populism in the rear-view mirror, populism for a simpler and, in the populists’ memory, better time.

It is populism whipped up in the most cynical terms by the most inner of elites portraying themselves as outsiders, a modern Clodius, who led those at whom they laugh.

It’s a curious populism, for the most part a phenomenon of the west. While in the west the lower middle classes remember fondly the days of their fathers and their salad days of the 1970s, in the rest of the world, the reality is that the majority of people have never had it so good.

The old, and the late middle-aged, vote and in doing so have driven the UK off the Brexit cliff and the US into the hands of the nomenklatura, in both cases wilfully and cheerfully.

At the root of the discontent is the differential pace of gains from globalisation.

There is a fantastic graph, which to a great extent explains the last 30 years of the world economy. What it shows, in essence, is the relative winners and losers, globally.

Since the early 1990s, the world has undergone a dramatic change. Concurrent with globalisation, relative wealth has shifted. The global middle class now is dominated not by relatively wealthy south Americans and those in the west, but also by the enormous Chinese and, to a lesser extent, African and Indian middle classes.

Crucially, this doesn’t imply, necessarily, that the middle classes of the 1990s have gotten poorer. They may have in some countries but in other countries they may not have. What they have become is just one part of the global middle class.

At the bottom, changes have been modest but in the middle — the global earners in the 30% to 60% of income distribution — there have been enormous rises in real income, as global poverty is reduced and globalisation acts as an enormous redistributive mechanism.

The Brexiteers and Trumpeteers are mourning, at least in part, about a loss of exclusivism, a loss of the world being their oyster and a loss of the ability to be the lords of economic creation.

A key element that should be of concern to us here in the liberal still-wealthy democratic west is this: There is no evident linkage between global wealth and democracy. Liberal, western, representative democracy in the long perspective is probably best seen as a mechanism for the middle classes to ensure that the peasants stayed in their place, more or less, and that the upper crust didn’t loot the place bare.

Doing so, with the concomitant superstructure of rules of law and procedure, enabled and enhanced entrepreneurship and economic growth.

But other mechanisms exist. China is one such experiment: Hyper-capitalistic at one level and at another deeply dirigiste to a level that would make the graduates of elite ENA institution weep in envy.

It is by no means democratic. Vladimir Putin’s Russia is another — both more and less absolutist than China but a Potemkin democracy, yet more or less succeeding. While I and others might like to think that in the long term these will come round, due to the same pressures as led enlightenment Europe, towards democracy, that is not a given.

Universal suffrage is a historical rarity in large states. The self-perceived squeezed middle classes of the west have tried universal suffrage democracy and plainly find it lacking. But their woes are only starting, and with them the disillusionment will perhaps reach greater depths, opening the door for the right to rise again.

This year also saw the arrival of a large number of automated processes and products that have the potential to eradicate swathes of previously-humanised middle and lower middle-class jobs.

Take some examples. In finance we see the rise of robo-advisors, to counterpart the growth of algorithmic trading. Robo advisors are programs, virtual robots as it were, which suggest, with little human intervention, what and where to place any funds one might have. This has the potential to wipe out a large tranche of the investment advisor and fund advisor market.

In motoring, we have seen astonishing growth in the penetration and acceptance of self-driving cars. Initially confined to cars, this is now beginning to penetrate into the trucking business. That has the potential to disrupt a huge employer — in the US, for instance, there are 3.5 million truckers, mostly independent operators.

In large stores, we are now grindingly accepting of the robotic checkout. Banking is increasingly roboticised. A 2012 paper noted a potential immiseration cycle from robotics — as they penetrate the workforce, they make it harder for younger workers to get jobs and make it less feasible and rewarding for them to invest in human capital, depressing wages for several generations.

The marginal productivity of lower-skilled workers declines while that of the higher-skilled rises, exacerbating the income gap and social tensions. The older and richer get richer, the younger and poorer get stagnation.

We are seeing this happening now through the overhang of debt and the unwillingness of the boomer generation to countenance any reduction in their welfare amid the growth of extreme income inequality.

As noted, globalisation has brought about huge welfare increases in the lower reaches of the income distribution. But the biggest gains are among the 1%, the 0.1% and the 0.01%. The world has seen the rise of a Plutocratic class unseen perhaps since the Tang or Roman empires.

Although not yet complete, the cabinet of curiosities that Donald Trump has proposed are already wealthier than the lowest-earning 50 million US households. Think of that for a second.

A dozen versus 100 million people. Half of the global wealth is in the hands of the 1%. The top 0.01% in the US are as wealthy as the remaining 0.99% that make up the famed 1%. There is something wrong with this.

As my wife’s aunt said when she first saw Versailles: “No wonder they riz up”.

What of Ireland? Well, we have the most unequal pre-tax pre-welfare society of the entire OECD. This includes the US.

Perhaps for shame, or perhaps because we have a fairly vibrant democracy, we have a tax and welfare system that makes us middle-ranking after distributions. But that is a function of a politics that is under strain. We have — mercifully — been spared the extremes of the right. But the virus is there.

Left to our own devices, we show all the instincts of the farther reaches of the Right. We don’t, really, give much of a toss about homelessness. If we did, we would not tolerate 7,000 people spending Xmas and New year in emergency accommodation, in small and dingy hotel rooms.

We think that there is no tax rate too low to attract any number of brass plated jobs, and be damned to the begrudgers who class us as part of the global tax scandal that is the multinational taxation mess.

We don’t really give a hoot about the undocumented, unless they are Irish in the States, when we mutter “shure didn’t they build America”, while confining our domestic undocumented to direct provision for decades.

We don’t much like paying tax, but love a good service. We have no problem with higher education, really, wanting a world class system, but one that produces lawyers and doctors for the upper middle classes, accountants and teachers for the middle, and sure isn’t the regional college grand and can’t they do computers and the like there for the rest.

We don’t want to pay for it. We want cheap electricity but don’t want pylons, and so on. We have a system that left to its own devices produces inequality on a scandalous scale.

Presiding over this we have ‘new politics’ which looks much like the old politics with a coat of paint. Painting over a damp rotten edifice makes it look good for a while, but the paint peels and reveals the reality.

Right now we have the paint beginning to peel.

In a world in which president-elect Trump is not an episode of ‘The Simpsons’, and in which the UK has decided to go back to 1957, where a populist right wing political party is showing spectacular growth in Germany through blaming the national woes on a small but visible minority, what could possibly go wrong?

Brian Lucey is professor of finance at the School of Business, Trinity College Dublin.


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