Delta driven deceleration is a reality, but so too is long-awaited increased productivity. The climate crisis and contingent extreme weather events are not going away. Despair and obliviousness are not an option; we need bright ideas and radical policy. China is deploying this to tackle inequality. A post-Afghanistan, weaker US will worry the Disillusioned with traditional politics, youth are turning to alternative methods to be seen, heard and ensure their demands are acted upon.
Evidence is now piling up that the Delta variant is dampening the global economic recovery. Weaker growth in business activity and deteriorating business and consumer confidence are affecting many countries worldwide. While in the world’s two major economies, weak economic data from China and disappointing economic measures in the US point to a deceleration. In addition, local ‘pingdemics’ in manufacturing hubs like China, Vietnam, Malaysia and Taiwan are closing supply channels. Europe, where high-frequency indicators suggest strong activity in the service sector, is a bit of an outlier. The ‘old’ continent’s resilience proves that the strength of the recovery is highly correlated with the ability to contain the incidence of COVID infectionswhile keeping restrictions to a minimum.
There is good news! ‘Thanks’ to the pandemicit looks like productivity has, at last, been ignited. In the US, Europe and Japan, data points to an increase in total factor productivity growth – the most common way to measure productivity which consists essentially in doing more with less – of 2%+ (for the past 10 years it’s been flat or negative). The most likely explanation: the ready acceptance of tech and the increased adoption of digital and automation. Current labour shortages look set not only to sustain productivity growth but also, by forcing companies to innovate more, could even spur it further. This is an indicator that what looks like a problem (and is indeed a real issue for many companies) may in the end generate positive externalities.
The newly published IPCC report is a very big deal, representing the baseline (hence cautious) consensus among 234 prominent scientists from more than 60 countries. They worry about the risks of irreversible tipping points, and concur that even with rapid emissions cuts, temperatures will continue to rise until at least 2050, leading to further extreme weather events. Grasping the significance of something that is going to get worse no matter what we do is very tough. It leaves little space for optimism and can lead to despair or obliviousness (which, with outright denial – by now the preserve of hard-core conspiracists – are the three main forms of reaction to climate change). Yet, all is not lost. In the coming years, there’ll be a furious search for solutionsand an abundance of new ideas (the real engine of economic growth) to mitigate the risk.
What does this entail? Tinkering around the edges no longer cuts it, and to get a sense of what’s coming, we recommend a novel (the meta-discipline by excellence) which is ultimately hopeful: The Ministry for the Futureby Kim Stanley Robinson. What does the book suggest? (1) Youth activism (our penultimate bullet point) will dramatically rise and will include extreme forms like ‘green terrorism’; (2) Policy action will get more radical, putting liberal democracies at a disadvantage (our next bullet point: when China starts dealing with the climate emergency as it doing so with inequalities, it will be brutally effective); (3) Business will have no choice but to adjust and comply as rapidly as it can. As one of the IPCC authors recently told us: “The only way to survive as a company is to go sustainable”.
The underlying rationale of Xi Jinping’s seemingly disparate measures against tech tycoons, private tutoring or in favour of a property tax and gig workers’ rights is now clearer: it’s all about “common prosperity”, e., ensuring that the gap between rich and poor doesn’t get any wider. China’s leadership – (rightly) obsessed with rising inequalities and the risk they pose to social and political stability – is now taking this particular bull by its horns by implementing three different kinds of redistributive policies: (1) higher taxation and transfers; (2) “pre-distribution” (increasing the share of labour over capital in the distribution of income) and (3) “voluntary” donations by the rich. Consequences for businesses and investors will be manifold– think for example about the “Western luxury industry” with so much at stake in the Chinese market (big groups such as LVMH or Kering have already lost around 10%). China’s reach and determination in tackling big policy problems are food for thought – notably for Western democracies: they face the same inequality problem but couldn’t possibly emulate all three policy measures.
The Afghan debacle is a turning point in the decay of US hegemonybringing key lessons on how the world is evolving. (1) China will now “play first fiddle” in the region (in the words of a Russian analyst); (2) concerns about US reliability and anxiety about US unilateralism have dramatically increased in the Western world; (3) doubts over US military strength / strategy / resolve will inevitably increase in and outside the US, with many already asking how USD2tr spent by the US in Afghanistan over 20 years and a military budget of around USD700bn per year (bigger than that of the next 10 countries combined) could result in such a failure. Every single opponent of the US is sure to make the most of this, and in so doing, render the global geopolitical landscape even bumpier than it is already.
Youth Activism (IV) – We return to this issue because it seems to us that many decision-makers still under-appreciate/estimate the radicality and velocity of change demanded by the young generation. Youth’s disillusionment with politics is growing, spawning a sense of frustration and anger about how their ‘elders’ are dealing with the three key issues of (1) social inequalities; (2) climate change and (3) racial justice. Consequently, a rising number of young people now believe that change will only come through grassroot activism and radicalism. This will translate into policy decisions that until recently would have seemed ‘inconceivable’. The referendum in September in Berlin about whether to seize rental properties is one such example: a large majority of young Berliners support the plan for expropriation that would force residential landlords to sell their properties to he city government at a ‘fair price’. Such radical policy proposals are bound to proliferate.
To read the full article click on this link: The Inside Track September 2021