Business elites fear a revolution is at hand
The backlash against globalism is coming unless more heed is paid to the interests of those left behind.
By Ambrose Evans-Pritchard, 9-2-2021
Davos Man is trembling. The cosmopolitan superclass is scrambling for ways to share a little of its income stream – as a prudent insurance policy – before the bottom half of western democracy takes matters into its own hands.
The new doctrine is enshrined in the Davos Manifesto, the digital billionaires’ answer to the Communist Manifesto of 1848. The cardinal code is ‘stakeholder capitalism’, otherwise known as looking after your workers, and agreeing not to trash society, or the local water system, or the planet.
There has been something grotesque about a lockdown crisis that has ravaged small firms and the manual self-employed even as the well-to-do accumulate trillions of excess savings. The Nasdaq 100 index is 40pc higher than before the pandemic. Listed global equities have risen in value by $24 trillion since March. The owners of wealth have made out like bandits.
“We’re on the brink of a terrible civil war. The US is at a tipping point in which it could go from manageable internal tension to revolution,” says Ray Dalio, founder of the world’s biggest hedge fund, Bridgewater Associates. Words no longer suffice. The pie will have to be divided.
Davos men and women know in their hearts that the economic dispensation of the last 20 years has been gamed by their caste, adorned in the ideological bunting of globalist virtue.
They know that staggering inequalities have festered, to the point where the average chief executive of an S&P 500 company earns 357 times as much as the average non-supervisory worker. The ratio was around 20 in the mid-1960s. It was still 28 at the end of Ronald Reagan’s term, which is an amazing thought.
They know that open physical and electronic borders have worked marvellously to their advantage, lifting the profit share of GDP to levels last seen at the end of Gatsby’s 1920s, while – by mirror image – cutting labour’s share of GDP through wage arbitrage.
Gold collar ‘brain’ workers have been able to float in a privileged sphere of monetised knowledge above frontiers and the nation state, the Anywheres of David Goodhart’s trenchant sociology. Blue collar ‘brawn’ workers in the West – the locally rooted, clannish Somewheres – have had to compete with Chinese wages.
“What is generating massive financial returns right now is intellectual capital. Labour is not being paid,” said Barclays’s chief executive Jes Staley at this year’s virtual Davos.
It has long been a rumbling theme at the World Economic Forum that something should be done about this, but few were listening hard enough to the primordial scream. They hear it now.
The storming of the US Congress on January 6 by Trumpian militias was not exactly Bastille Day for the Davos coterie. It was more of a cross between Mussolini’s march on Rome, and the autogolpe of a Bolivarian caudillo. But what it exposed is the sheer hatred felt against privileges and faux-righteousness of the post-national Anywheres.
Mr Dalio’s prescription is a peace-time ‘Manhattan Project’ to rebuild the crumbling base of western society. His model is Franklin Roosevelt’s New Deal, although one might equally look to Theodore Roosevelt’s Square Deal before the First World War – an assault against overmighty cartels and the practitioners of “predatory wealth” then derailing American capitalism.
The pandemic has accelerated the pathologies. The European Central Bank estimates that the lockdowns have brought forward the digital switch by seven years. A cascade of old economy insolvencies will come as moratoria expire.
The K-shaped recovery threatens to Brazilianise the social structure of Europe and North America yet further. Sao Paolo’s rich take helicopters to move from their urban fortresses to beach retreats, flying over gridlock and the carjack gangs. That is where inequality takes you.
“You’re going to get a very high risk of extremism coming out of this. We have to find some way to adapt, otherwise we’re in a very dangerous situation,” said Mary Callaghan Erdoes, head of assets and wealth management for JP Morgan.
It is unfair to use Davos Man as a foil. The WEF at times feels like a boot-camp for sinners, a forum for the moral improvement of corporate elites. The high-minded éminence grise, Klaus Schwab, is a product of south German Christian democracy, inspired by the doctrines of Pope Leo XIII’s Rerum Novarum on the ‘rights and duties of capital and labour’.
Rerum Novarum was intended to “refute the false teaching” of socialism, fast gaining traction among European workers in the 1890s. “The first and most fundamental principle...must be the inviolability of private property”. Yet it also called on the owners of capital to raise their moral game, and it feels contemporary. One thinks of Amazon and Uber.
“That the spirit of revolutionary change, which has long been disturbing the nations of the world, should have passed beyond the sphere of politics and made its influence felt in the cognate sphere of practical economics is not surprising. The elements of the conflict now raging are unmistakable...in the enormous fortunes of some few individuals, and the utter poverty of the masses; also, finally, in the prevailing moral degeneracy. The momentous gravity of the state of things now obtaining fills every mind with painful apprehension.”
This is Prof Schwab to a tee. He has been warning for a very long time that there will be backlash against globalism unless more heed is paid to the interests of those left behind, although one wonders if he also means the unfashionable cultural sensitivities of the Somewheres. (I doubt it).
My optimistic view is that today’s inequality will self-correct as the political pendulum swings back. In hindsight we can see that the Western liberal democracies blundered after the Lehman crisis in imposing fiscal austerity, offset by ultra-loose money and quantitative easing à outrance . The enrichment of capital was not matched by the enrichment of labour. The mix was poisonous.
America has now switched to fiscal reflation on a colossal scale. A Keynesian labour economist heads the US Treasury. The Federal Reserve has adopted equality as its new lodestar and will try to accommodate deficit-spending. The Washington system as a whole is moving towards the sort of Manhattan war-economy that Ray Dalio wants. It is buttressed by Joe Biden’s ‘Buy America’ trade and procurement policies. A carbon-border adjustment tax will curb outsourcing to Chinese plants and help to bring home America’s manufacturing base.
The shift in Britain began in 2016. The triple eruptions of the referendum, the European elections, and Boris Johnson’s demolition of the Labour red wall have together led to a regime change. Had vested interests succeeded in overturning the outcome of Brexit, the consequences would have been nefarious for British democracy. But they did not succeed and that is of elemental importance.
Brexit has been a paradoxical episode because the Left aligned itself with the multinationals, bankers, and cross-border rentiers, and against its own working-class base. The British metropolitan Left – as opposed to the Jacobin hard-Left – never seems to have understood that the EU has locked contractionary fiscal policies and creditor supremacy into its legal structure.
The difficulty for Europe is that the existing treaty architecture favours status quo incumbents and is resistant to any form of transformational change. Trying to repeal the Acquis is like pulling teeth. The pendulum cannot swing back. It is jammed.
The Greeks voted for radical change in 2015. The Italians voted for radical change in 2018. Neither changed anything. Rebel leaders are invariably co-opted. The European institutional government in Brussels is as insulated from normal democratic pressure as the papal Curia. So the question I have is how the EU – and above all the eurozone – is going to reinvent itself in time to head off the backlash of the Somewheres.
For Davos man and woman, a solution to their burden may be coming soon: a wealth tax. Tim Bond from Odey Asset Management says governments face a choice between inflationary deficit spending and the easier path of one-off confiscation.
Fed analysis shows that the richest tenth in the US had a net worth of $80.7 trillion late last year, or 375pc of GDP and far above historical levels. A 5pc raid would generate $4 trillion, covering a fifth of GDP. It would pay for the pandemic nicely. The expropriation could perhaps be spread over several years to avoid tanking the market.
Mr Bond says it is much the same picture for the UK. If you wanted to focus only on the plutocracy – the 1pc – it would in theory generate the equivalent of 1.6pc of GDP annually for five years.
Whether you could in fact haircut the rich in this way without all kinds of political consequences and evasionary counter-moves is an open question. But the axe is going to fall one way or another. And it is happier end than dangling from a lamp post.
