Can we afford long-term strategies?
Yannick Cabrol – Manager, EY-DKM Economic Advisory Services
Global economic growth is far from spectacular but, at 3.7% according to the IMF, it is much improved from the recessionary years a decade ago.
In the most developed countries employment levels are rising strongly; across the OECD, the unemployment rate has dropped below the 2007 level with 5.2% of the population unemployed.
Against this backdrop, the UK vote to leave the EU, the gilets jaunes movement or the latest presidential elections in the United States, Italy or Brazil can appear surprising.
If jobs are being created and growth is steady, why do so many people vote for change? What is not working: are the economic data misleading us?
Concern is stretching beyond just the worries of today. People are increasingly expressing their fear about longer term trends, how their perception of their own position in society has changed over recent years and how the challenges ahead will change their lives.
For centuries, western societies believed in social and economic progress. A study published on people’s outlook on their personal lives and their country's future (IPSOS on behalf of the Gates Foundation, September 2018) showed they believe in their own future more than their country's. 68% of British people would be optimistic about their future, but 53% feel pessimistic about their country's. In France, this national pessimism reaches 70%.
When you ask people which factor has the most negative impact on their lives, one in three answer ‘’government and political leaders’’. At the core of their concerns is the public stakeholder’s inability to anticipate and influence their country's long-term future.
The paradox of looking to leaders who must focus on the short-term process of getting elected to tackle long-term problems, many of which may lie beyond their political career, is at the heart of the problem of shifting focus to the long term.
Perhaps the current surprising geo-political trends around the world tell us there is a shift towards a longer-term view among the voting public, but it is hard to shake-off the feeling that short-term tax cuts and deferment of tax increases will remain electoral catnip.
There are many possible reasons for the increasing fear of the future and two of the most frequently cited are globalisation and global warming.
Globalisation is seen by many as sacrificing social progress for economic competitiveness and inequalities. It allowed more than one billion people to get out of extreme poverty in less than 25 years according to the World Bank, but citizens of western democracies believe it has resulted in an increase in inequalities never seen before.
‘’In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.’’ JM Keynes, The tract on Monetary Reform, 1923
The World Inequality Report published in 2018 and coordinated by the economist Thomas Piketty showed that the top 1% of the US population now gathers more than 20% of the national income compared to less than 13% for the lower half of the population.
The data suggests that both the poor and the top 1% in emerging countries benefited most from globalisation. The middle classes in the US and Western Europe benefitted least and, crucially, saw the rich pulling further away from them and the poor catching up. Their relative position was changing and there was a palpable feeling that they were no longer becoming richer over time.
Global warming and its social consequences tomorrow is increasing the feeling that yesterday was probably better than tomorrow. The Intergovernmental Panel on Climate Change commissioned by the UN estimated the global economic damages from warming to be $69 trillion if temperatures reach 2°C by 2100.
Global warming could also force 200 million to migrate according to the UN which is undoubtedly worrying many western citizens who fear the pressure on prices and public services. However, the gilets jaunes protest showed that tackling climate change in the long term will be difficult if the solution harms the poorest in society in the short term.
Globalisation and global warming could be seen as opportunities for individuals and their countries if public stakeholders tackle these challenges following two core principles of making the future both desirable and affordable.
Making the future desirable is about showing empathy to ensure government has a concrete way today to tackle the challenges which will become more and more pressing tomorrow. Globalisation will likely lead to urbanisation, a strong increase in housing prices in major cities and a rise in inequalities.
Digitalisation will lead to a competition between skilled workers and intelligent robots on some jobs. Aging societies will bring new pressures to public services and much of the underpinning infrastructure will need updating. Global warming will lead to a shift in tax systems to take into account environmental externalities, which will lead to higher fossil fuel prices.
Making the future affordable is about putting in place today mechanisms which will help people adapt to a new situation tomorrow. The latest political events are warning governments that more is not always better.
It is not the overall state of the economy that should be our only target, and a new way of measuring success beyond GDP should be found. It is not just the voice of the majority that should be heard, but also the voices of those people who have enjoyed improved economic conditions and often do not express their views as loudly in the press, at public meetings or in polls.
The affordable and desirable challenge is harder than it sounds and it is far too easy to look to governments and leaders and lament their inability to solve the puzzle. Difficult choices require a societal understanding of what is needed to get to a better future and a commitment and acceptance by all aspects of society to make it happen, including the public and businesses.
Maybe the long term will not be about ‘’more’’ but if it is about ‘’together’’ it should definitely be better and fairer.