The world has entered a period where uncertainty rules and where surprises abound.
Focusing on 2016, the two major surprises usually singled out are the Brexit or the vote leading to the exit of the U.K. from the European Union, then the election of U.S. President Trump against favourite Democratic candidate Hillary Clinton. Even though a short-term focus could let us believe that the turmoil only or mainly hits “the West”, political and geopolitical surprises and uncertainties have multiplied worldwide, starting at least with the shock of the financial crisis in 2007 and 2008 and responses to it (see end note for some major instances*).
What is thus happening? How are we to tackle the uncertainty? Are these surprises related or discrete independent events that it would be wrong to link or try to understand together?
We shall start here with the 2016 surprises and related ongoing uncertainty, i.e. the Brexit and the U.S. Trump Presidency, and focus more particularly on the contradictions and questions that arise when we compare the two phenomena. We shall seek a framework for and elements of understanding, which can then be used in the development of scenarios for the future.
After having outlined the explanatory frameworks most used to describe the two surprises, we shall focus here on the first of them, globalisation. We shall look at populism, the second explanation with the next article.
In this article, after having specified and defined globalisation, we shall explore the reactions of economic and financial actors. We shall point out that these reactions to the two events were often unexpected considering the anti-globalisation narrative, while also sometimes differing in each case. Using these unexpected results as indications and leads for further questions and research, we shall suggest that a new model of production might be emerging, a “nationalised globalisation”, leading potentially also to further geopolitical uncertainty. We shall then turn to the financial industry, start explaining the different behaviour in each case and envision possible tensions ahead, including political and geopolitical ones. Finally, we shall turn to the behaviour of the high-tech corporate actors, and suggest an explanation for their difference in each of the two cases, which goes beyond the classical anti-globalisation narrative.
Globalisation as an explanatory framework?
The Brexit and the election of Donald Trump as U.S. President are most often lumped together and seen as similar. They are portrayed as anti-globalization reactions, and as exemplifying the rise of populism or nationalism, as evidenced by the following headlines and reports (among many others): Larry Elliott, “Globalisation backlash enters new phase with Trump win“, The Guardian, 9 Nov 2016; Anatole Kaletsky, Economist at Project Syndicate “Trump’s rise and Brexit vote are more an outcome of culture than economics” [populism and anti-globalisation], The Guardian, 9 Nov 2016; John Rennie Short, Prof. Political Geography, “The new globalization: Brexit and Donald Trump represent a different backlash to free trade“, Salon, 30 Nov 2016; Ronald F. Inglehart and Pippa Norris, “Trump, Brexit, and the rise of Populism: Economic Have-Nots and Cultural Backlash“, Faculty Research Working Paper Series, Harvard Kennedy School, 29 July 2016; Justin Sink et al. “Obama Says Brexit and Trump Powered by Globalization Fears“, Bloomberg, 15 Nov 2016; Will Martin, “These charts show all the trade deals the anti-globalisation movement could destroy“, Business Insider UK, 15 Nov 2016, also quoting Deutsche Bank strategist George Saravelos: “If 2008 marked the trigger, this year is likely to be remembered for signaling the persistence of a new mega-trend: the peak, and likely unwind of globalisation”; Washington’s blog, “You’ll Only Understand Trump and Brexit If You Understand the Failure of Globalization“, 13 Nov 2016; etc.
Globalisation is difficult to define as various scholars provide different definitions, often shedding light upon different aspects of a complex and multi-dimensional dynamics, while understanding of the word changes outside social science. From a social science points of view, a general definition has nonetheless emerged:
“Globalization refers to fundamental changes in the spatial and temporal contours of social existence, according to which the significance of space or territory undergoes shifts in the face of a no less dramatic acceleration in the temporal structure of crucial forms of human activity…. [the related] alterations in humanity’s experiences of space and time are working to undermine the importance of local and even national boundaries in many arenas of human endeavor. ” (“Globalization“, Stanford Encyclopedia of Philosophy, First published Jun 21, 2002; substantive revision Jun 10, 2014).
The globalisation of free-trade and deregulation – what many outside social science implicitly mean by globalisation – is one aspect of this more fundamental definition of globalisation. It takes place through the factors of “deterritorialization”, “interconnectedness” and “velocity of social activity” (Stanford, ibid – the two remaining characteristics being long-term and multi-pronged process). That expression of globalisation is aptly described by Short (Ibid.) as rooted in the Washington Consensus and the willingness to promote open market and free trade, including because it was meant to be more conducive of peace, as claimed by the liberal and neo-liberal schools of international relations.
The anti-globalisation narrative let us expect that those responsible for the two surprises – i.e. those who support the Brexit and voted for it and those who support Trump and voted for him – did so because, mainly, they were against the free-trade and deregulation globalisation, or more exactly because they belonged to those people left aside by globalisation. Then, according to this narrative, the implementation of the Brexit by U.K. Prime Minister Theresa May on the one hand, the governance of the Trump administration, on the other, would mean the end of globalisation as we knew it: i.e. the end of open market and free trade, notably in its multilateral component, the end of deregulation, while the state would find back a stronger role and the citizens would be better protected from the nefarious impacts of this economic globalisation.
Towards a nationalised globalisation?
Contradictions and questions
At first glance, we would thus expect the corporate sector, notably multinational companies (as well as very wealthy individuals), which are the main beneficiary of this very globalisation and thus may be expected to want to see it last, first to have supported neither the Brexit nor Donald Trump’s candidacy. We would then expect the same corporate sector to react negatively and strongly once the policies following the elections start being implemented, or to do their utmost to oppose and derail these policies.
Yet, both New York Stock and London Stock exchanges have never been so buoyant, the U.S . Dow Jones being over 20.000 and the U.K. FTSE 100 above 7200, as shown on the two 5-year graphs (Google Finance). Thus, as a whole, it would seem that the corporate sector is not that opposed to or concerned by this so-called anti-globalisation surprises, on the contrary. In the case of the U.S., tax reform certainly plays its part whilst corrections are foreseen by experts (e.g. Patti Domm, “Dow pulls off a stunt it hasn’t done in 30 years“, 23 Feb 16, CNBC), but the market has nonetheless so far been optimistic following the election and should it have been truly that overwhelmingly worried about anti-globalisation, tax reforms expectations may not have been sufficient to offset a fundamentally negative outlook.
Are we thus truly facing the end or a change of the free-trade and deregulation globalisation or, alternatively, is the corporate sector actually not hostile to a changed in globalisation?
If we look now at exchange rates, a first difference appears between the U.K. and U.S. situations. In the first case, the British Pound has taken a serious hit against the U.S. Dollar and, in a lesser way, against the Euro with the Brexit and has not recovered:
On the contrary, the U.S. Dollar has not stopped rising against the Euro and been mostly rising against the Japanese Yen:
Hence, we may deduce that the U.K. and the U.S. surprises deserve to be treated differently and cannot be understood by a single anti-globalisation narrative.
If we start looking more specifically at the two phenomena and at some of the reactions not of the corporate sector in general, but of some of its actors, we also notice apparently puzzling behaviours.
In the case of the U.K., financial companies and banks, relayed by the media, almost every day, make declarations against the Brexit and how they may move part of their operations to continental Europe: e.g. “Goldman piles pressure on May to protect City post-Brexit” (Martin Arnold and Patrick Jenkins, for Financial Times, 30 Jan 17, CNBC), “Lloyds Bank closes in on Berlin as post-Brexit EU hub: sources” (Andrew MacAskill and Lawrence White, 13 Feb 17, Reuters), “City banks warn of Brexit job moves” (18 Jan 17, BBC News), etc.
In the U.S., President Trump has created a strategic and policy forum, which gathers powerful and experimented corporate and financial actors, from BlackRock and its USD 5.1 trillion in assets under management to Tesla and SpaceX or General Motors, as shown on the mapping below (The White House, Office of the Press Secretary, “Remarks by President Trump in Strategy and Policy Forum“, 3 Feb 17; Jacob Pramuk, “Trump to meet ‘frequently’ with Blackstone’s Schwarzman, other business titans to discuss policy“, 2 Dec 16, CNBC).
It will be useful, to have a better idea of the power and weight of BlackRock alone, everything being equal, to note that the Gross World Product is estimated by the IMF at $75.21 trillion for 2016, thus only 15 times more than the value of the assets managed by BlackRock. BlackRock revenue was USD 11155 million (11.1 bn) for 2016 (Quarterly Earnings Release). For the sake of comparison, even though industries are different, Lloyds Banking Group reported for 2016 total income reaching £ 17.5 bn (BBC News, “Lloyds reports highest profit in decade“, 22 Feb 17). Each has thus a total income higher than the GDP of the countries ranking below 114 (LLoyds) and 129 (BlackRock) in size of GDP, out of 190 countries, i.e. respectively 77 and 62 countries. BlackRock’s net income was in 2016 USD 3.2 bn and Lloyds reported a £ 4.24 bn pre-tax profit, the highest in a decade (ibid.).
Towards a new manufacturing model?
The participation of the CEOs to the U.S. forum, which is advisory, does not mean full support to President Trump’s policy, but indicates to the least that there is no confrontational behaviour. On the contrary, there is discussion and dialogue, as well as most probably attempts at making sure policy will suit these companies’ interests.
For example, if we briefly look at BlackRock, its CEO Larry Fink expressed both hope and concern over President Trump agenda: “We have high expectations with … [the] Trump administration [on] tax policy or infrastructure. It always take longer,” he said. “If the rollout of some of these growth initiative programs by President-elect Trump are slower, if they are less ambitious, then I think the market is ahead of itself” (interview (CNBC, 13 jan 2017). Worries stem notably from uncertainty and forthcoming tensions between the President and the Federal Reserves (during Yahoo Finance All Markets Summit 8 Feb 2017, Sam Ro, “Watch: Larry Fink’s full interview at Yahoo Finance’s All Markets Summit” 9 Feb 17, Yahoo Finance).
However, Fink’s disquiet is also about the widespread short-termism within the corporate world he combats, and the “growing backlash against the impact globalisation and technological change … “, an impact he recognises as adverse for many, even though he still asserts to believe in the overall benefits of globalisation (Myles Udland, “Larry Fink: I see a lot of ‘dark shadows’ in the market right now“, 8 Feb 17, Yahoo Finance; Matt Turner, “Here’s the memo Larry Fink, the head of the world’s largest investor, just sent to staff on these ‘uneasy’ times“, 2 Feb 2017, Business Insider UK).
In a nutshell, the desired strategy Fink stresses is to act locally as a global company, emphasising “commitment to long-termism” and respecting diversity (“Here is the memo…”, ibid.). If we consider the examples Fink gives – “we also need to be German in Germany, Japanese in Japan and Mexican in Mexico” (Ibid.) – then it seems that by local Fink actually means national, or a recognition of the nation. Interestingly such a move towards a “nationalisation of globalisation” is also how Prime Minister May’s policy can be described (James Forsyth, Theresa May’s new third way“, 25 February 2017, The Spectator).
As noted by Washington’s Blog (ibid), referring to a 2015 article by The Washington Post explaining “that the giant multinational corporations themselves are losing interest in globalization” (Jeffrey Rothfeder, “The great unraveling of globalization“), Fink’s vision could be part of a larger movement away from the previous phase of economic globalisation. This new model would include next-shoring (manufacturing in the proximity of both demand and innovation as suggested by McKinsey in 2014) and reshoring (relocalising in original country – Wikipedia). Assuming this hypothesis is correct, then the anti-globalisation narrative must be revised not as something pitting people, state and government against the corporate sector, but as the start of the search for a new production model.
Thus, to answer to our previous question, it is not that large multinationals and many among the corporate sector are unconcerned about the Brexit and the Presidency of Donald Trump, but that they may be seeing them also as an opportunity to move towards a more adequate system in the making. This system would likely involve a measure of nationalisation or recognition of the nation as major unit.
In that case, those entities and actors depending on the older classical “free trade and deregulation” globalisation, if they do not accompany the movement for change, could react adversely as it is not only their beliefs but also their survival, power and wealth that are at stake. The European Union, as well as China, come to mind here and scenarios considering such developments would deserve further research. Political and geopolitical crises would likely be expected.
As far as the U.S. strategic and policy forum is concerned, we shall also note the absence of any representative of the military-industrial complex (who can be present elsewhere), which should be further investigated considering its importance within the American system and for the U.S. Foreign and Defence Policy, and as a result for the world (Military-Industrial Complex Speech, Dwight D. Eisenhower, 1961; among many, Andrew J. Bacevich, “The Tyranny of Defense Inc.“, Jan/Feb 2011, The Atlantic).
The “puzzle” of the financial industry
If we now compare the attitude of the financial companies, notably banks in the U.S., to what is happening in the U.K. then we are faced with completely different behaviour, most probably because the interests, challenges and stakes are different in the two cases.
In the Brexit case, the issue it to keep access to the European banking needs, as well as financial business related to the Euro, such as, for example, euro denominated clearing (Huw Jones, “BoE’s Cunliffe says euro-denominated clearing should not be forced into euro zone“, 22 Feb 17, Reuters). Fascinatingly, in a complete reversal of ideological accusations, it led the Bank of England’s deputy governor to accuse Brussels of “currency nationalism” because of the attempt of the EU to reclaim euro denominated clearing (Ibid, Tim Wallace, “EU’s ‘currency nationalism’ could splinter world’s financial system, warns Bank of England deputy“, 22 Feb 2017, The Telegraph).
These potential losses of business worry not only British banks, but most if not all banks operating from London, including U.S. Banks. All will try getting a deal that is the best for them, including through expressing disapproval and acting accordingly.
U.S. banks, in their country, do not have to face at all this challenge and thus may behave in a totally different way, according to the issues specific to American banking, including those related to the still dominant position of the U.S. dollar in the world.
Moreover, a monetary policy continuing to support a strong U.S. dollar, as seems to be finally favoured by the new Treasury Secretary Mnuchin, a former Goldman Sachs banker (e.g. Saleha Mohsin “Mnuchin Secures Senate Confirmation as Treasury Secretary” 14 Feb 2017 and “Inside the Mind of Mnuchin: Too-Strong Dollar May Hurt Economy“, 24 Jan 17, Bloomberg) is also favourable to investments abroad, including buying foreign companies. Should the hypothesis of a nationalised globalisation be increasingly likely, then a strong U.S. Dollar could help actualizing it not only abroad, but also domestically: import of raw materials would be cheaper and favour manufacturing domestically, the resulting products being then sold on the domestic market. The potential loss in terms of exports because of the strength of the U.S. Dollar would be offset by the fact that U.S. companies would need less to export, as they would be directly implanted in foreign markets.
This assumes, of course, that other countries allow it, which thus demands that we fully consider the beliefs, will and power of political authorities, besides other factors, including corporate culture. For example, Prime Minister May’s government “ordered officials to scrutinise the bid for the UK’s third-largest listed company, following high-level, separate talks between Number 10 and the two sides” to protect Anglo-Dutch Unilever, and its employees, when it faced and rejected the “surprise offer” of merger by U.S. Kraft-Heinz, backed by its main shareholders U.S. Berkshire Hathaway (Warren Buffet) – and U.S. Brazilian 3G (
Further in-depth research will be necessary to deal fully with the financial part of the Brexit and of the U.S. Trump Presidency, considering the specificity of each situation, the interactions with the fundamentals of globalisation, including claims regarding potential “currency nationalism”. It will also be crucial to consider the consequences on the supremacy of the U.S. dollar, and related geopolitical impacts as well as potential tensions pitting the political authorities of one country and the companies they protect against a similar political-business nexus of another country, without forgetting the new regulations that will need to be designed, voted and enacted.
The high-tech sector, the Brexit and the Trump administration
The high-tech or large web-based companies behave completely differently with regard to the U.K. and the Brexit compared with the U.S. and the Trump administration.
Apple, Google and Amazon have all asserted commitment to the U.K., even though the Brexit is taking place. Apple’s CEO Tim Cook, declared he was optimistic about the post Brexit UK, after having announced plans to build new headquarters in London, however warning they will pay attention to new regulations (Rhiannon Bury, “Apple to create new UK headquarters at London’s Battersea Power Station“, The Telegraph, 28 Sept 2016; BBC News, “Apple ‘optimistic’ about post-Brexit UK“, 9 February 2017). Meanwhile, business being business, the prices of apps in the Apple Store will be raised on the basis of a parity between the Pound and the Dollar, to reflect the drop of the British currency (Alex Hern, “Apple increases App Store prices by 25% following Brexit vote“, The Guardian, 17 Jan 2017), which is unlikely to hurt much consumers considering the still very low prices of these apps, e.g. from £0.79 to £0.99, as well as their non-essential character.
Google also announced plans to build large headquarters in London, raising the number of staff employed in the U.K. from 4000 to 7000 (Eric Pfanner and , “Google to Expand London Campus Despite Brexit Questions“, Bloomberg, 15 Nov 16). Meanwhile, Amazon will hire 5000 employees in the UK, which represents one-third of its expansion in (geographical) Europe, and open a new head office in London (Euronews, “Amazon to add 15,000 jobs across Europe, 5,000 in Britain“, 20 Feb 17; Alanna Petroff , “Amazon hiring 5,000 workers in U.K. despite Brexit fears“, CNN Money, 20 Feb 17; Sam Shead, “Amazon shrugs off Brexit with plans to hire 5,000 more staff in the UK“, Business Insider UK, 20 Feb 17). Similarly, Facebook, Expedia and Snapchat hired staff, confirmed London as headquarters, opened or enlarged offices (Ibid.).
On the contrary, in the U.S., the tension between the Trump government and high-tech firms flared over the immigration executive order (Matt Drange, “Facebook, Google, Apple Lead U.S. Business Charge Against Trump Travel Ban“, Forbes, 3 Feb 2017). Actually, the relationships between the two sides are murky and cover much more than a temporary immigration ban, with issues related for example to encryption, anti-trust legislation or net neutrality (for an explanation on net neutrality: Investopedia, “What Is Google’s Stance On Net Neutrality?“, June 2, 2015) (Melinda Biancuzzo and Jonathan Meyer, “Tech and Trump: What the Next Four Years Might Bring“, 8 Feb 17, Entrepreneur).
We are here in very different settings and dealing with very different objectives. On the one hand, as far as the U.K. is concerned, U.S. high-tech companies invest in a foreign country to develop their operations and platforms, which maybe seen as a direct application of the “nationalisation of globalisation” hypothesis identified above. Meanwhile, they take advantage of the low Pound and also develop a weight that they may use in the future to try influencing the U.K. government in their favour, including to boost globalisation, this time understood first through its social science meaning. This could have potential impacts on all aspects of globalisation, according to the way the British government and state respond, and anticipate.
On the other, in the American case, high-tech companies fight in their country, the U.S., for their interest. The impact on globalisation is inherent because of the very nature of these companies… which are all Americans. It does not seem indeed that any of them threatened to leave the U.S.. In both cases, we are here at a deeper level of complexity and understanding than expected from the initial free-trade and deregulation globalisation narrative, while the geopolitics of a technological globalisation, potentially in the new nationalised guise, largely led by high-tech U.S. companies, must be considered.
Diving deeper into the globalisation and anti-globalisation narrative regarding the Brexit and President Trump’s government allowed us to identify real and apparent contradictions, which led to sometimes unexpected questions and thus to new elements of understanding. As a result, uncertainty starts being reduced as we are developing the building blocks upon which to build a mapping of the issue at hand, which will then be used to develop scenarios.
We need now to turn to the other major explanation given for the Brexit and President Trump election, populism, as we shall see in the next (forthcoming) article.
*To name only some major instances of political and geopolitical surprises, we have the 2010 – 2011 Arab Spring, enmeshed with the start of the Libyan and Syrian wars, the latter favouring the renewed rise from 2013 onwards of the Islamic State, the spread of non-violent opposition movements such as the 2011 Spanish Take the Square / Read Democracy Now followed by Occupy, the 2013-2014 Ukrainian Maidan revolution that led to the 2014 Crimea incorporation within the Russian federation, war in Donbass, polarized and tense relationships between “the West” and Russia (see), while Russia turned further East and worldwide, the planned, yet surprising for many, fall of oil prices starting in July 2014, with some difficulties so far to make it rise again substantially and its string of impacts, the potential rise of a new type of order in Eastern Asia involving a probably increasingly dwindling American power, etc (see Portals to a new opposition nexus; war in Ukraine; war in Libya; war in Syria; the war against the Islamic State; Helene Lavoix, “Lessons from the conflict in Ukraine” – (3) and (4), “An Isolated Russia? Think Again!“, 15 September 2014, The Red (Team) Analysis Society; Barbara Kollmeyer, “Oil prices push higher, lifted by decline in Saudi exports“, Marketwatch, 20 Feb 17; Jean-Michel Valantin, “Oil Flood? The Kingdom is Back“, 15 Dec 14 and among others “The Warming Russian Arctic: Where Russian and Asian Business and Strategies Converge?“, 23 Nov 16, The Red (Team) Analysis Society).
Featured image: Geralt via Pixabay, Public Domain.
About the author: Dr Helene Lavoix, PhD Lond (International Relations), is the Director of The Red (Team) Analysis Society. She is specialised in strategic foresight and warning for national and international security issues.