The global financial markets, on the one hand are attempting to reflect the true health of corporate and government finances and, on the other hand are grappling with their expectations of political changes which could affect the major economies of the world. The rise and spread of populist politics in these economies is confounding the status quo and is being branded by the guardians of the mainstream as a political risk to the economic order of the day.
While the populist politicians across countries are placing their finger on the genuine economic grievances of their peoples such as the rise in migration of people from unstable parts of the world (whose integration can put host societies under considerable economic, cultural, safety and security duress) and economic displacement due to technological change and globalization, the critics of populism wish to continue to defend and advance the status quo. They cannot fathom how the populist politicians can really address their people’s concerns without upending the extant economic order. However, the financial markets are reacting positively to political promises about a brighter economic future in developed countries by building-in hopeful economic outcomes of such promises into their expectations. Thus far, the financial markets do not see two seminal populist events – Brexit and Donald Trump – as a risk, instead they see them as opportunities for economic growth for the United Kingdom and the United States.
Populism is not always necessarily detrimental to societies and economies. Many great upheavals in history have been populist uprisings by leaders who created movements to address the grievances of their peoples. Such movements dislodged the status quo and replaced it with political and economic orders which represented the people’s will about their governance. Amidst rising income disparity in societies wrought by the neo-liberal economic order of the past four decades, Brexit, Donald Trump and the nationalist movements gathering steam in Europe, if done properly, bode well for how the world’s economies engage with each other to better distribute the benefits of globalization within countries. The extant economic order has become far too beneficial to the entrenched elites around the world.
In the major emerging markets, the anti-corruption crusades in Brazil and South Korea, the policies by President Vladimir Putin to ensure that Russia’s vast natural resource wealth benefits the Russian people and not the oligarchs in the aftermath of the Soviet Empire, anti-corruption sentiment which swept Narendra Modi into power in India, and dissatisfaction over corruption in South Africa are all signs that political risk could, in fact, lessen in the long term because of the strengthening of the rule of law and institutions to provide a peaceful, stable and predictable environment for the economy and the financial markets to function.
Developed economies could bring about changes in the international trade regime to favor local investment, job creation, and development of local markets around the world by replacing the global supply and production chain with local production for local markets by multinational corporations and local companies. International trade could then mostly be in commodities instead of in offshore services and finished and partially finished goods. This is how the current international economic order could be upended to ensure the continued economic development of the world in an equitable manner.
The restructuring of international production and trade as a win-win for all participants and peoples, if this is what the populist movements are set out to achieve, is not a political risk but a transformation that is very much needed. It is a risk for the status quo interests and they do not have a choice but to bear it.