I spent much of today at the annual conference of ASIFMA, a trade body for over 100 banks, asset managers and traders in Asia, being held for the first time in Tokyo. And the themes of the big panels as well as the conversations over coffee surprised me, to be honest.
Yes, there was plenty of talk about the US-China trade war and whether the current global slowdown will turn into an actual recession. There were discussions too about the challenges of digitalisation and how to react to changes in regulation.
But what really seemed to be exercising the delegates, whether from the buy or sell side, were social and political issues: the rise of populism; questions of equity and inclusion; how wealth could and, perhaps, should be redistributed; and whether people and countries will in future be “open” or closed” rather than “left” or “right”.
Of course, these questions have been around for a while: since the global financial crisis and certainly since the election of Donald Trump and the ascent of other, national strongmen. Still, it strikes me as relatively novel that chief economists from banks such as Goldman Sachs, Nomura and CICC are thinking about such existential issues and not just the next tweak to GDP estimates.
And their conclusions? At the risk of vastly oversimplifying, inequality and, hence, populism are here to stay. Meanwhile, the classical tools developed by policymakers and the financial industry are patently failing to solve these challenges. The obvious example here is monetary policy. Lowering interest rates, often into negative territory, has not stimulated much economic growth; but it has cut into the nest eggs and pensions of many, often older, savers, who are now helping to put (and keep) Trump and his ilk in power.
The populist leaders, in turn, are pushing their countries into becoming increasingly “closed” societies, hostile to immigration and trade. Tragically, this only further destroys jobs and wealth, increasing already historically extreme levels of inequality; and it threatens to divide the world into potentially hostile zones of influence, reminiscent of the Cold War or Europe on the brink of World War One.
Unless a sudden and sustained surge in global growth bails us all out, this could end in tears as the more disenfranchised elements of the 99% force a redistribution of wealth in their favour – with accompanying levels of violence that will make the current protests in Hong Kong look like child’s play.
My conclusion is that while it is encouraging that the bankers and their economists are worrying about these issues, they are right to be worried. The analysis is spot on. Crafting solutions is going to be much, much harder.