A 24-hour news cycle, the World Wide Web, and our growing device addiction ensure that geopolitical issues create interest. It’s now more than 12 months since the British voted to leave the European Union — an event that many pundits saw as the trigger for a domino effect for other European countries looking to do the same.
This was followed by an unemphatic election result here in Australia, Trump’s surprise victory in the US presidential election, increasing concern around North Korea, and a steady flow of terrorist attacks.
But while political developments have figured highly over the past year, their impact on markets has been minimal.
The economic outlook is slowly improving in Australia and across many of the world’s advanced nations. Sales and production levels are rising, leading companies to take on more staff. Unemployment is falling almost everywhere.
There is no doubt most of us ‘feel’ that we have entered a volatile period in world history, as emerging economies grow faster and the relative power of the US declines. This will likely mean that geopolitical instability will continue for a few more years.
There is no longer a public consensus that globalisation brings benefits that outweigh costs. Instead, populist appeals to nationalism are being made on both the political right and left.
As a result, we are seeing a backlash against economic rationalist policies (deregulation, privatisation and globalisation) because of the slow post-global financial crisis (GFC) recovery, rising inequality, and stress around immigration in some countries.
The danger is this results in re-regulation, nationalisation, increased taxes and protectionism, and other populist responses which could slow growth, particularly for a nation with high trade-exposure, such as Australia.
Over the past 30 years in Australia, we have had approximately 15 years each of Labor and Liberal/Coalition Governments, and with them a consistent policy trend towards economic rationalism, even if Labor called their position the ‘Third Way’.
But now, the task for policymakers has rarely been more difficult.
Across the world, voters and many of their political leaders are losing faith in the economic rationalism that drove policy over the past two decades. Yet what we need today more than ever are enduring policy and reform agendas.
Success depends on solid preparation, extensive consultation, and effective political selling.
Failure means more turnover of governments. More turnover typically means new politicians and new politicians are typically less seasoned in the art of explaining the benefits of policies and reform.
It’s a vicious global cycle and one which Australia has yet to immunise itself from. Until we do, expect geopolitical issues to matter, until they don’t.