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Davos worries about loss of trust

Davos is the apogee of the international rules-based system. Its main proponents and beneficiaries meet to reinforce the rules and regulations whilst advancing the views and policies of the global leaders

| 10 min read

Davos is the apogee of the international rules-based system. Its main proponents and beneficiaries meet to reinforce the rules and regulations whilst advancing the views and policies of the global leaders. They argue the cases of international bodies like the World Trade Organization, the UN, the World Bank, the climate change conferences, and the World Health Organisation (WHO). They see free trade as good, with freedom of movement of people as helpful to labour markets.

They are also dogmatic about what the main issues are. The Secretary General of the UN at Davos said: “In the face of existential threats posed by runaway climate chaos, and the runaway development of AI without guardrails, we seem powerless to act”. This does not capture the many worries of people on tight budgets struggling with the cost of living.

Davos leaders wish to tread the road to net zero and to live under a framework of international rules. It is interesting that this year they should choose the need to restore trust as their main theme. They see some evidence of their consensus losing traction with voters and consumers.

There is the damage rogue states and terrorist groups are doing to world peace and global trade that rightly worries many. There are sceptical movements against the work the WHO did over COVID-19, and against the chosen policies to implement net zero. There is a new impulse by the EU, the USA, and other governments to bring more investment onshore and to keep technology close once discovered. There are tensions between the USA and China as the world’s two largest powers. There are wars in Ukraine and Gaza. The leaders meeting is concerned at the rise of populism in politics on both sides of the Atlantic. They worry populists in power could impose more restrictions on trade, boost budget deficits further, limit the supply of migrant labour, or attack big business.

Populist movements of right and left

There are populisms of the left and the right. They have some things in common. Both are willing to use price controls and taxes on big corporations as and when they wish to side with customers and find ready sources of revenue, though this is more likely to come from the left. They are both willing to flex or ignore some of the rules of international conduct where they think they stand in the way of the popular will and may get themselves into legal fights.

Brazilian President Lula from the left ended in prison after his first period in office. The Justice and Law right-wing party government in Poland was criticised for its substitution of national laws for EU and international treaty requirements. Reform of the justice system is a main plank of the new government to bring it back into line with international norms. Both left and right are distrustful of conventional media and use social media and informal methods to get their messages out. The main differences concern their attitude to the state, with left wing populists wanting the state to spend more and intervene more, seeing it as usually a force for the good, whilst a typical right-wing populist will see too much state action as a limit on personal freedoms and will wish to roll back the scale and range of bureaucracy.

In the USA these debates are typically fought out within the two great parties. The Trump wing of the Republicans is suspicious of the state, wants lower taxes and has a distrust of lawyers. They want thestate to back off from intervening to change the way they travel and lead their lives, and to stop the state insisting on an electrical and renewables revolution. Centrist Republicans accept the need to tread the road to net zero and have more respect for the legal system. On the Democrat side the radical left wants to go further and faster with increasing welfare spending and higher taxation on the rich and on business and favours more state regulation of everything from banks to energy companies. Centrist Democrats have more willingness to compromise over spending and borrowing levels.

In Europe most of the rows occur between parties, with the continent a hotbed of new party formation. The last century duopoly of a centre right Christian Democrat party alternating in power with a centre left Socialist party in most countries has long gone. Frustration with the performances of these parties in government allied to various systems of proportional representation has led to successive waves of new parties. In Italy the Christian Democrats were overhauled by Forza which added populist elements to their offering, only to be displaced by the Northern League as the bigger party. This was replaced recently by the Brothers of Italy. The right felt it had to constantly reform under new slogans and logos following capture of the incumbent centre right parties by the established consensus. The establishment says it just shows when a radical party gets into power it has to moderate and accept the realities and constraints of living in a complex global environment.

The populists complain of sell out and look for other ways or new parties to sail their policy ships. In Greece Syriza swept away the traditional parties, only to disappoint in its turn.

Why are many voters disillusioned with traditional parties or candidates?

The biggest single force on both sides of the Atlantic fuelling disillusion with the traditional parties is mass migration. In the USA Trump garnered votes out of taking a tough stance on trying to stop big flows of people over the Mexican border. Biden came in wishing to relax the controls and stop the wall building to provide a friendlier face to refugees and economic migrants. The numbers became so large he had to look at some restrictions, and even to building more wall as his Democrat predecessors had done. In Europe there is dissension between the EU and some member states as they seek to find a way to share the numbers coming in around the union as a whole, and as they search for more ways to control their borders. This becomes an election issue. Some people worry about housing and public service provision if many extra people come into a country.

Net zero policies have also created tensions between the establishment and populist inclined voters. In the Netherlands the policy of cutting back on animal husbandry to reduce CO2 and methane produced a backlash with new and populist parties ousting the government in a recent election. These will be a feature of the probable Trump/Biden contest later this year, as Trump calls for more exploitation of cheap oil and gas whilst Biden urges winding it down.

Will populism impact economies and markets?

So what difference will these political changes make? The populist parties are moving from being a threat to taking a role in government in some cases. In Italy, the Brothers of Italy were swept into office and have so far lived within the established rules and kept their popularity up. In the Netherlands, the anti-migrant Party for Freedom took the most seats, and a new Farmers party also made an impression opposing the environmental policies of the old government. In Hungary Orban retains his strong opinion poll lead and runs his government in a way the EU dislikes. In France President Macron’s party is a poor third in the polls, with National Rally of Le Pen fame leading the ratings. In Poland, the elected president is still well inclined to the Law and Justice party which does not always play by the international rules. That party remains in the lead in the polls though it lost its majority in the recent parliamentary election. Under Donald Tusk as the new coalition prime minister, the police have arrested two former Law and Justice Ministers for an offence in 2007 which had been pardoned. The government has changed the national broadcaster to reduce the influence of Law and Justice views over it, triggering an occupation of studios and a defeat for the minister in court. In the USA a possible third candidate for president from the historically Democrat Kennedy family is offering to run as an independent with anti-vaccine views as part of his ticket.

The likely outcomes of the populist push are some changes of policy but no revolutionary change. Established governments will try to hold power by tacking towards strong populist movements. The USA might elect President Trump. The European Parliament will probably have more populist party members after its summer election, but they are unlikely to have a majority of seats. There will be a move generally to try to provide more control over borders with more restrictions on free movement of people. There will be some adjustments to net zero policies where too much consumer resistance is encountered. There will be a general move towards more national solutions with more state direction, subsidy, and other interventions. The establishment will still be going to Davos in the years ahead and still pointing to the restrictions and opportunities international rules and agreements impose, whilst national politics will seek more exceptions and more national answers.

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Davos worries about loss of trust

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