Politics used to be a lot more boring.
But elections and referendums, with their binary outcomes, have increasingly come to dominate international markets and make them more volatile.
The rise of populism in the European Union and US has gone from a niche area of interest to a source of real anxiety for investors and voters alike.
Goldman Sachs set out to investigate the phenomenon with its Top of Mind newsletter for clients.
Editor Alison Nathan interviewed David Brady, a political science professor at Stanford University, who put into clear English the reasons behind this surge in political uncertainty.
In short, it’s down to technology, globalisation and their effects on the market for labour. Here’s Brady (emphasis ours):
“The simple answer is globalization and technology. Specifically, our research has shown that political instability has corresponded with a decline in the share of industrial or manufacturing employment. The sharp loss in manufacturing jobs over the last several decades due to technological advances and offshoring substantially cut the number of industrial workers, who had dominated the political landscape for most of the 20th century.”
The economic concerns of the blue-collar bloc has handed an opportunity to populist, anti-establishment parties.
“And in multi-party systems, opposition to globalization and the free flow of immigrants shifted votes to movements like FN or the People’s Party in Denmark, while parties like Syriza in Greece or Podemos in Spain have drawn support on anti-austerity platforms.”
This is causing a widespread cooling effect on corporate investment.
Here’s the chart:
Something similar happened between 1850 and 1900, Brady said, where a huge increase in global trade transformed farmers and servants into factory workers, who went on to win more rights from the ruling classes.
This time around, however, change is more far reaching and workers’ sense of identity is coming under more pressure.
Here’s Brady again:
“The key difference is that the current, second great wave of globalization is more powerful because it includes economies like China and India. Three quarters of the world is now involved in the global capital-based economy. Technological change is also much faster.”
“And whereas agrarian jobs were largely replaced with industrial jobs during the last transformation, many jobs lost today are disappearing altogether, which has impinged on people’s sense of identity. For all of these reasons, political uncertainty is greater today.”