A new [economic] dawn?

Change doesn’t happen simply because we want it; it happens when we actually need it!

Ever since the fall of the Berlin Wall in 1989, the world has moved forward fully synchronized, based on macro-economic targets. At least, that is what we thought until recently. We seemed to be able to surmount all sorts of man-made issues (numerous and important stock market corrections, financial and banking crisis, the attack on the World Trade Center in NYC, Fukushima, etc.). However, these incidents have shifted our concerns to security and more surveillance, as measures for a better life.

At the same time, governments have pushed for a globalized world with more centralization of power [as a perfect example we have the achievement of Europe], and the political elite has developed a kind of world apart whereby they can govern and rule with impunity, purely based on macroeconomic requirements. The development of this kind of governance recalls the political decision-making process of the USSR. We all know the disastrous results that followed, and so it may come as a surprise that this same type of system is being remade – ultimately, with the same complete failure.

A little less than two years ago, the Swiss population voted to limit free mass immigration. While the intent of the decision was to stop the immigrants for whom there are no places to work and live, i.e. that cannot qualify for the high standard of Switzerland, the political outcome was very different. The vote placed Switzerland in opposition to free movement of persons, and consequently at risk for losing some of the valuable treaty benefits held with the member states of the EU.

The free trade, free movement system put in place by the EU of is, intellectually speaking, a two-tier system. On the one hand, it is a highly elitism system. Only people with an above average standard of living and education can fully enjoy the benefits of free movement, whereas the working poor often do not have the mobility to consider applying for a job in a different region. On the other hand, freeloaders in the system enjoy all sorts of benefits, wherever they go.

The flipping point of the free movement system for people is that there was very little room for discussion about a building a consensus. The non-negotiation of that treaty is probably also partly the cause of the UK’s Brexit. Additionally, there have been other topics where open discussion was non-existent, such as in the case of QE and monetary policies. The result—mis-allocation of enormous amounts of money and a totally distorted market situation—has been the opposite of the desired outcome.    

When a minority makes a decision for the majority, it will always be questioned. More importantly, when power is overplayed by the minority, changes occur not because the majority wants them, but because we need them. Expressed in an analogy, when you frequent a restaurant and pay for food, you do not expect to get the same food day after day! Whether you want variety or not, you will need to vary your nutrient intake to avoid developing deficiencies. The same principle applies to a population where an elite minority has promised the unprivileged majority an ever-improving life, but tangible results are lacking for a long period of time.

 Society can only evolve when all involved parties derive benefit. The fact that millions of people were lifted out of poverty during the last three decades is not the result of free trade or globalization. The real enabler was the fact that people received some kind of guarantee of equal access to education, infrastructure improvements, better food, etc. That is what engineered growth. But this success story did come with a cost for others. In reality, the entire western world paid a heavy tribute.

 The initial goal of improving the quality of life for everyone was certainly well intentioned. However, it derailed at some point. The optimistic view that all can gain access the next societal level was influenced by giving quantity priority over quality, and short-term over long-term. Consequently, today, wholesegments of our economic system are exposed to zero-growth driver-sectors. A country cannot survive for long with only two thriving sectors—banking and the real-estate market. Yet, although these two sectors are by default zero value-added sectors, they were fully prioritized by the political elite. 

That the elite consensus is being rejected more and more has received another striking confirmation this week-end. In France, the right-wing “Les Republicans” party conducted the second round to elect their presidential front-runner. Interestingly, close to nine million people took part in the election process. In essence, they had the choice between of a program that looks like “more of the same,” versus a plan that spells out less Europe—abolishing the 35-hour workweek, passing new labor laws, cutting the jobs of up to half a million public workers.

The result was that the majority believes considerable changes are needed, but one question remains: Has the French population finally understood that the previously promoted status-quo and full range of free social benefits leads nowhere? Not because they want it, but because they desperately need it?

In conclusion, we have some interesting times ahead until the old elite fully depart.