Editor’s Note: Christopher Smart is head of macroeconomic and geopolitical research at Barings. The opinions expressed in this commentary are his own.
In an annual January rite, investors will be tracking the headlines from the World Economic Forum in Davos next week to assess politicians’ progress toward greater trade integration and policy coordination.
Many will also have just been sifting through the news from this month’s other major market confab in Las Vegas, the techno-palooza known as CES 2019.
The sharp investors will spend more time in the Nevada desert over the next few years than in the Swiss mountains.
It’s not just that the mood in Davos is likely to be particularly grim this year. Global growth is slowing, China and the United States are locked in a trade war and the US government has been partially shut down for nearly a month.
More worrying, however, is the sense that global leaders are locked in protracted struggles that don’t especially matter. For example, the decisions around whether or not to impose tariffs on a narrow range of goods or adjust the flow of immigration pale in comparison to the technological disruption and investment challenges at hand.
We’re moving toward an economy dependent on vast interconnected data networks that move money, data and services across borders regardless of the rules that govern people and things. The Davos organizers themselves seem well aware of what’s going on in Las Vegas and have even dubbed the theme of their own conference “Globalization 4.0.”
But what does that really mean? Much of the rhetoric fails to distinguish between “globalism” and “globalization,” as Klaus Schwab, the founder of the World Economic Forum, points out: “Globalism is an ideology that prioritizes the neoliberal global order over national interests,” while “globalization is a phenomenon driven by technology and the movement of ideas, people, and goods.” It needs rules to harness its benefits and mitigate its excesses, but its advance is relentless.
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As investors look to navigate the evolving world, it’s important to note that investing in the short term will naturally require a careful understanding of the dynamics of trade, tariffs and immigration. Failure to move forward on trade deals between the United States and its major partners will add costs to global supply chains and likely crimp profits. Restricting the movement of immigrants and refugees will carry adverse economic and humanitarian consequences.
But as fraught as these issues may seem in today’s headlines, discerning long-term investors will be watching how the global economy is transforming without regard to the rules around border crossings.
This is not to say that the physical world no longer matters. Nor that the populist impulses in Britain, Brazil, Italy and the United States should be ignored. They signal a genuine sense that the ruling classes have ignored the workers of the world in a narrow quest for global rules that boost profits.
While the news cycle changes with every tweet and investors grapple with an unpredictable world, I am confident that the global economy of the future will be increasingly driven by flows of data and innovative ideas — not flows of steel, cars or even people.
