A populist tide is rising. What course should business steer?

17 May 2019

Dr. Alexis Crow, Lead, Geopolitical Investing practice, PwC US and Andrew Gray, Partner and Global Head of Brexit, PwC UK

The turmoil surrounding the UK’s planned exit from the European Union may be the most visible manifestation of rising populism in Europe and elsewhere, but it is hardly the only one. The electoral successes of populist parties and politicians in Austria, Brazil, Italy and Poland, not to mention the U.S., provide further confirmation of the trend. They are all signs of rising wave of populist sentiment around the globe, which respondents to PwC’s 22nd Annual Global CEO survey identified as one of the top 10 threats their organisations face in 2019. Aggregated and amplified by social media, populist resentment of business and political elites and resistance to immigration have emerged as potent political forces that can destabilise economies and governments and give rise to policies that could disrupt the free movement of goods and people around the world.

Visuals for Populism blog design Facebook v1.0Brexit, and above all the prospect of a ‘no-deal’ Brexit that could cause economic disruption across the Continent of Europe and beyond, is the greatest immediate risk to global financial stability. (Although the UK’s exit date from the EU has been pushed back to 31 October 2019, a ‘no-deal’ Brexit remains a distinct possibility.) But it’s not the only way that rising populist sentiment is making business more difficult and uncertain. Cross-border trade is becoming more expensive and complex. The hunt for talent may become more challenging as countries enact anti-immigration policies and close or tighten their borders. And if, as is widely predicted, populist and nationalist parties take seats from mainstream parties in the upcoming European Parliamentary elections, consensus on key policy issues such as immigration and trade will be harder to achieve. Populist factions could also hamper a unified European response to sudden shocks, such as the meltdown of a national economy or a surge of migrants across the Continent’s southern and eastern borders.

The agendas of the various populist movements, though varied, have strong commonalities rooted in a sense of grievance and victimisation and expressed in demands for tighter immigration controls; greater local control of national economies; and hostility toward political and economic elites. Those attitudes reflect anxieties over rising wealth inequality; declining income and social mobility; and the spread of automation and the fear that job losses may follow in its wake, compounded by the belief that political and economic elites are out of touch with the day-to-day lives of ordinary citizens.

Those beliefs are, somewhat counterintuitively, more pronounced among middle-class than lower-class voters. An exhaustive analysis[1] of the 2016 U.S. presidential election by the Gallup polling organisation found that supporters of Donald Trump were more affluent than the average voter, while poorer voters were somewhat more likely to support Hillary Clinton. Those findings suggest that absolute levels of social and economic status drive populist sentiment less than perceived comparative status. As sociologist Arlie Hochschild puts it in her book on the U.S. Tea Party movement, Strangers in the Their Own Land[2], populist supporters see themselves as standing in line on a hill leading to prosperity at the top, while immigrants, minorities and women try to cut in line ahead of them. This perspective, as Christine Lagarde, managing director of the International Monetary Fund, has said, in combination ‘with lower growth, more inequality and much more transparency, [are the] ingredients of what is defined now as a crisis of the middle class in the advanced economies.’[3] This crisis is spurring the rise of populist movements and parties, Lagarde suggests.

Business—and here we mean commerce—has a vital role to play in mitigating the negative impacts of populism and counteracting the pull toward extremism. But it will require reversing the trend of recent years, which has seen companies turn away from investing in people and new skills acquisition toward taking on additional debt to fund share buybacks and dividend payments. In the U.S., this decline in investment in the non-financial economy is apparent in a recent business conditions survey conducted by the National Association of Business Economics.  It found that 84% of companies surveyed had not changed their hiring or investment plan in the wake of the passage of 2017 Tax Cuts and Jobs Act.[4] Instead, many companies have been forced to duplicate supply chains amid trade uncertainty and invest heavily in scenario planning, rather than deploy long-term capital to the skills and workforce of the future—an approach that would benefit citizens of every class and age group.

In addition to increased investment, commerce can help to mitigate the threat of populism by actively engaging with governments and the public to help shape policies that address anxieties over automation and declining living standards. The business sector can also do a better job of making the case that diversity, inclusion, environmental responsibility and increased trade add value to national economies and increase individual opportunity. And finally, business can build trust by visibly seeking a balance between the public good and the speed of innovation, between data-driven value and privacy and security, and between local, national, and global markets.

Ultimately, though, the most effective way to build trust is to invest in the real economy, but such investments are unlikely to materialise in the absence of a positive long-term outlook for the future. Right now, with the shadow of populism looming larger even as the odds of a chaotic Brexit have shrunk and the credit cycle nearing maturity, the global outlook is highly uncertain. The only certainty, perhaps, is that low growth driven by low investment in the real economy may only pour more fuel on the fires of populism.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2822059

[2] Arlie Hochschild, Strangers in Their Own Land: Anger and Mourning on the American Right, The New Press, New York. 2016

[3] From remarks delivered at a panel discussion at the World Economic Forum, Davos, Switzerland, 18 January 2018

[4] January 2019 Business Conditions Survey Summary, National Association of Business Economics

Comments

Thanks for the morning read, I just woke up at noon on vacation.
I sat in macroeconomics one day and Dr. Freed said,"...and the effects continue to spiral up. The problem is to keep the economic outlook generalized in the area of Gartner's Magic Quadrant." Therefore, a policy is derived to expel leadership methods, Leadership by Northouse, that drive the prevailing economic outlook toward that quadrant. This cycle of growth, method of km diffusion, political bias outcome, social advantage/disadvantage, psychological backlash in labour and classism,and dynamic relationship between business and government are the result of said derived policy. Populism is one such result. However, please do not forget, there are 4 modes of thought... Critical Industrial Relations, HRM, Labor Relations, and Economic. This excellent snapshot presented by the doctors from PWC is within the one modality of Economic thought that presents the impact upon the relative modes in a short form of a possible direction or outcome. I suggest there is quite possibly no less than 3 alternative modes of thought, with qualitative and quantitative strategy that can be formulated with retort to every decision made in policy. Also, the United States War College will emphatically tell you, behind every policy, which implies this articles global isolationist critical industrial relations mode, is war to defunct said policy. So it might be wise to loosen those ropes that bind HRM and Labour and quit being so dam extreme as mentioned by Laguarde.
Let's put the world back to work with a positive mode rather than normative mode of emotional quotient as this heavy hearted article relates towards.

bill

I believe everything that's not leftist propaganda is populist?

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