Global disruption: What’s an elephant got to do with it?

Following the UK referendum supporting a negotiated departure from the EU, the backlash against globalisation continues with the election of Donald Trump in the USA.  The rise of nationalist parties (and extreme right groups) in Europe and elsewhere points to troubles ahead for the global ‘order’.

Donald Trump has said that on his first day he will issue a notification of intent to withdraw from the Trans-Pacific Partnership (TPP).  He also intends to renegotiate or withdraw from the North American Free Trade Agreement (NAFTA), and get tough with what he sees as China’s currency manipulation.  What will actually happen we don’t know, but Trump along with the socialist Bernie Sanders, was able to tap into a feeling among middle and working classes that the political establishment had lied to them about the benefits of globalisation.

So, what does an elephant have to do with any of this?

Enter the Elephant Chart which was first published in a 2012 World Bank working paper by the economist Branko Milanovic (*the source for the chart below is Bloomberg Markets).

You can see from the chart that the bottom 5 percent gained nothing, but also those between the 75th and 90th percentiles saw almost zero growth.  Of this latter group, Milanovic says, “These people, who may be called a global upper-middle class, include many from former Communist countries and Latin America, as well as those citizens of rich countries whose incomes stagnated.”  The Rust Belt in the American mid-West comes to mind along with more rural areas. 

 Dominic Konstam, Global Head of Rates Research at Deutsche Bank AG has said, “This calls for a radical policy rethink from the established political class and, at this stage, there are limited options but all of them have one thing in common: the need to redistribute spending power from those that have to those who have less.”  That is a pretty radical statement from a bastion of capitalism.

 Where does globalisation go from here?  One-off trade deals between countries, smaller-scale regional trade agreements (although a possible demise of NAFTA doesn’t bode well), or a rethinking of social safety nets.  The social problems are also likely to exacerbated by the employment challenges in what has come to be known as the Fourth Industrial Revolution: advanced robotics, ‘smart factories’, the Internet of Things, 3D printing.

Although no one can predict how the present disruption will play out, we might see multinationals shifting toward glocalisation strategies, as GE have already done.

One thing we do know is that we are entering a period of VUCA squared:

Volatility²

Uncertainty² 

Complexity²

Ambiguity²

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