Hamish McRae: Look past White House for key to US growth

The noise from politics is drowning out everything else — and understandably so. But there will be an American economy after this astounding, raucous and troubling election campaign is over, and there will be a new Administration that has to confront its tricky issues. 

There will be a world economy, with its even trickier issues, too. For the US has at least got a reasonable, if uneven, recovery going. Most of the rest of the developed world hasn’t. Even the more successful bits of it, such as Germany and the UK, have hit bumps of late — Deutsche Bank and Brexit — and we don’t yet know how serious either of those bumps will turn out to be. 

The annual meetings of the International Monetary Fund (IMF) and the World Bank have just ended and the mood was, well, worried.

There was all the usual stuff that the global financial elite fret about — including, of course, Brexit. But there was a deeper malaise, even fear. It was that the whole post-Second World War settlement, that ensured countries could gradually build a more liberal-trading global economy, was under threat. 

For more than 70 years, the world had become richer, with living standards rising for the vast majority of its population, and with extreme poverty being steadily reduced. This was done on the back of the gradual reduction of barriers to trade and capital movements, and growth had continued despite periodic reverses in the form of recessions. 

Now it could all go wrong. Christine Lagarde, managing director of the IMF, put it this way: “A retreat from globalisation and multilateralism is a serious risk at a time when international co-operation and co-ordination are as critical as ever.” 

Well, yes. But look how Hillary Clinton is being attacked for what might seem perfectly reasonable remarks about the need for “open trade and open borders” in her speeches to Wall Street audiences. Look at the response in Europe to Britain’s desire to control immigration. Look at the hostility towards the Trans-Pacific Partnership, the proposed trade deal for Pacific Rim countries, and the Transatlantic Trade and Investment Partnership, the proposed agreement between the US and the European Union. 

Both have been attacked as a ganging-up by big business to try to put something over on ordinary people — the idea that the world economy is organised to work for the few rather than the many. 

For those of us who were brought up to fear any return to the protectionism of the Thirties, and who respect the ideas embodied in the Bretton Woods institutions, the IMF, World Bank and World Trade Organization, this is profoundly troubling. 

Of course, any change in trading agreements or capital flows creates losers as well as winners. The problem has always been that the losers (for example, people who are working in industries that are hit by cheap imports) are vocal about their loss, whereas the mass of gainers (the people who buy the cheaper goods as well as the people who make them) take their gains for granted. But in the past, the losers have to some extent at least been compensated, and the fact that living standards in general have continued to climb has built support for a more liberal trading regime.

Now that support seems to have gone. I would not quite say that “the best lack all conviction, while the worst are full of passionate intensity” as William Butler Yeats wrote in The Second Coming in 1919. But the attacks on free trade and investment are certainly full of passion, and they come from both the extreme Left and the extreme Right. As for conviction, it would be naïve not to acknowledge that the once-solid central consensus is weaker now than at any time since the end of the Cold War.

Equally, it would be naïve not to acknowledge that this isn’t just a failure of communication by the present generation of global leaders. It’s a failure of performance. If they lack conviction, maybe they are not the best after all.

Two things will, I think, help the US rebuild trust in its leadership, and neither of them has anything to do with the country’s politics.

One is that, alone among the large developed nations, it is starting to get its monetary policy back to normality. Interest rates are on the rise, with the consensus now being that the next move will come in December. You may feel the Federal Reserve has been going too slowly but, unlike the  rest of us, at least it is going in the right direction.

The other is that America’s hi-tech companies are extraordinarily vibrant. All five of the largest companies on the stock market — Apple, Alphabet (aka Google), Microsoft, Amazon and Facebook — are part of the technological revolution. Market capitalism is not just delivering the goods and services people want to buy, it is delivering the goods and services that are transforming  the world economy. Even the most ardent attackers of globalisation would probably want to keep their iPhones and their Facebook accounts.

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