“A great civilisation is not conquered from without until it has destroyed itself from within… ”
Across the Occidental Economy there seems a trend towards political failure as polarization, sleaze and opportunism takes hold, even as electorates suffer from increasing inequality and declining prospects. As the threat of post-pandemic inflation rises, the ingredients are all there for further instability and labour strife. It’s all happening as the geo-political spheres of influence between China and the West are being redrawn.
The Gates’ divorce of the millennium is getting the headlines this morning – which could provide some welcome relief for many politicians, beset by increasingly noisy and hostile news flow. Increasingly institutional investors are concerned about how distorted the political process is becoming – and what the consequences for markets could be.
Growing political instability across Occidental Economies is becoming a trend. It takes two forms:
First is ineffectiveness – for all the political noise, nothing seems to get done.
Second is a rising tide of resentment as society becomes more fragmented between the haves and have-not.
Political failure could well become a mounting crisis for markets in coming years – especially if weak governments come alongside the kind of short, sharp shock of inflation which many strategists and economists now expect. Inflation could fuel union demands for wage rises at a time when corporates remain weakened in wake of pandemic – fuelling the kind of industrial wage militancy we last saw in the 1970s.
This time, political instability looks possible across the whole Western economy – with inflation simply being a spark to ignite the fire. But, the fire may already be alight. Let me illustrate this morning with snapshots from England, Scotland, France, and the USA about how politics is fuelling future instability.
It increasingly feels the politics of the west is tumbling into a deep black hole. It’s happening at a time of increasing concern about what future geopolitical fault-lines will mean for investment opportunities: Chinese expansion versus the increasingly fragmented and ineffective looking Western democracy.
More than a few market commentators have been drawing allusions between the current fracturing political situation in the West, and the last days of Rome. All the usual themes are there; from the threat of monetary weakness from inflation (which will no doubt fuel cryptocurrencies), rising inequality, a rising sense of everyone in it for themselves, and the masses being ignored.
Last night I watched the film Nomadland – it’s bleak, but catches the sense that while we all might be disposable to the Gods of Mammon it is still possible to retain dignity on our own terms. I’m really not so sure we all have that option.
Let’s start a quick jaunt round the collapse of Western Democracy with Boris here in the UK.
While the UK struggles with massive issues like education, the future of the NHS, post-pandemic recovery and the threats of global supply chain crisis (already chip-shortages have effectively closed a large part of automotive manufacturing), the political noise across the nation is about how Boris paid for renovating his grace and favour flat.
Tory supporters are furious – how can such a little thing be important? They claim its proof of a media conspiracy against them. Equally it demonstrates the unworthiness of the political opposition against him – how dare the opposition Labour party be trying to score such pointless, meaningless, petty-pinching points at this moment of national victory against the virus? They see the noise around Wallpaper-gate as proof the establishment is biased, and determined to seize any opportunity to pillory him, and bring him down no matter what the cost to the nation.
But…. Rules are rules.
Where would you draw the line? A prime minister who nicks a kit-kat or one taking kick-backs on arms-deals? One who asks rich pals a few simple small favours, or the one who goes on to allow grand scale kleptocracy by his/her party as every politician sees a few “extras” as their right? Or Tory party politicians set to make millions by selling their contacts to dodgy finance firms, or from stakes in companies favoured for ill-governed pandemic contracts?
Compare and contrast the spluttering resentment of Tory diehards to the reality out in the burbs. We may get some signals from this week’s local elections, but the Tories will likely do well against the fragmented Labour party. The political opinion of voters is now so anaesthetised to muck that its increasingly seen as ok for politicians to lie. If they can lie, what’s the next step?
Put the few quid Boris might have overspent on the Downing Street Trianon in context with the over 700 Royal Mail postmasters who lost their jobs, their livelihoods, their reputations, went to jail or committed suicide on the back of dodgy Horizon software that Royal Mail executives knew wasn’t fit for purpose. For 20 years these hardworking people’s lives have been destroyed – and no one is being punished.
It’s difficult not to feel fury when reading about the crass behaviour of Royal Mail accountants, about covered up investigations, or pregnant postmasters sent to jail. Lives destroyed. The case is beyond shocking. These people had no chance to retain their dignity – like the heroine of Nomadland. They were not just discarded by the system, but actively destroyed by it.
It is difficult not be impressed with the modern political masterclass that is Nicola Sturgeon. She is direct and, unlike any other modern politician, she answers the question – or, at least, gives the appearance of doing so. She has facts, numbers and information at her fingertips and presents her case with fluency, direct eye-contact. Love her or loathe her, Nicola looks and sounds credible.
At elections this week Sturgeon will hold her position as Scotland’s First Minister. The SNP may even win an overall majority of seats, empowering it to demand a new referendum on Scottish Independence, which is currently a 50/50 call for the Scot’s electorate. She has packed that vote by enfranchising 16-year olds, and she will present a rosy plan for Scotland as part of Europe with nary a care for a border with its largest trading partner – which, of course, is England.
She will gloss over the budgetary implausibility of independence and quote widely about the success of small nations. And since she is good – a damn good politician – she gives the impression she is listening, before calmly, rationally and effectively explaining how Scotland is doomed if it stays part of England, liberally blaming Boris for everything… and because you will agree with that, you will find yourself agreeing with the rest of her argument.
Like all very dangerous politicians the SNP are very clever. They don’t need their arguments for leaving the UK to stand up to scrutiny. They just need Scotland to reject Boris’ calls to stay.
Independence will, of course, be madness for Scotland and bad for the UK. Already analysts are advising clients to short GBP. But politically… it may happen.
Nothing ever changes in France – it remains the canary in the coal-mine for revolution, which is simmering. As the Far-left and police clashed at the regular Mayday fixture, the only beneficiary is the Far-Right, which is now the mid-right and determined to avoid the “vote for anyone but Le Pen” trap which won Macon the last election. The French electoral analysts now say Marine Le Pen represents a credible right-wing choice for French voters – which really should be worrying the rest of Europe.
Politically, the risks of right-wing, Euro-phobic French Government are barely being factored into the pricing equation on the Euro or the delicate political balance of Brussels and ECB. If it wobbles…
I’ve deliberately saved up the USA for last in this rush round the collapsing political process – because it is most obvious.
How foolish we were to think Joe Biden could be a source for healing America. Rather than pull together Democrats and Republicans together on a plan for national rebuilding – which they all agree is required – the rancour and polarization between them has deepened. Senior republicans are full of fury that Biden is actually doing stuff.. (Much of it the same stuff Trump was going to do…)
A usually smart clever, erudite US chum was beside himself with rage that Biden was actually delivering left wing policies like Tax rises and accused him of pandering the hard left. He believes Biden’s “naked socialism” will deliver the next election to Trump. The US is setting itself up for a 4-year battle till the next presidential election – where MAGA and Trump will be setting the tone. It means 4 more wasted, hostile, polarising years…
The Chinese really could not be any happier with the outcome. Politics matter for markets.
* * *