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The Hope Factor

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By Peter G Hall
Vice-President and Chief Economist Export Development Canada

“Where there is no vision, the people are unrestrained.” So penned wise King Solomon millennia ago, and it’s perhaps an apt adage for today’s political climate. The post-recession period has seen significant political upheaval, aided by social media but fed by a groundswell of underlying frustration that we just can’t seem to kick. Is it a new reality brought on by a confluence of multiple structural factors, or is it more of a passing fad?

The phenomenon is widespread, touching emerging and developed markets alike. For Canadians, likely the most visible manifestation of political mayhem is the US election. Restraints of the past have been flung aside, with candidates using radical rhetoric that verges on the incendiary at times, fights occurring at rallies, and policy statements that strike fear into the hearts of onlooking exporters. Brexit is also the issue du jour, with the lead-up to today’s vote inflaming debate and eliciting unthinkable violence. For a change, political issues dominated discussion on my recent cross-Canada Global Export Forecast speaking tour. In almost every location. the US election and Brexit were, respectively, the top two questions asked. Clearly, Canadian exporters are troubled by the rancor and its possible implications for near-term business activity.

Near-shore effects may be new, but the movement isn’t. Mid-2008 saw the threat of political upheaval in China as the onset of global recession T-boned real-estate markets. It cost China a pretty penny to avert the initial unrest, and they have had to keep up the stimulus since. It hit the Arab world in 2010. The self-immolation of a frustrated food vendor in Tunisia ignited a movement that toppled or seriously threatened partial autocracies across the Middle East and North Africa regions, to the amazement of casual observer and expert alike. To this we can add the migrant crisis, which arose out of the Syrian conflict but has since morphed into a general movement of economically strangled citizens seeking a better life. To this can be added political upheaval of various magnitudes in places like Brazil, Burkina Faso, France, Thailand, the Philippines and others.

Why the discontentment? After years of promises, policies, and projects, there is very little to show for the effort. Global growth is still unimpressive, and the stagnation has pushed a lot of people to the side of the economy. Snuff out the hope of enough of the population, and they are bound at some point to let their feelings be known. Hope is a seldom-discussed, but always essential, element of any economy, critical to sustaining the human spirit. Dampened hope causes its victims to single out ones deemed responsible: political figures, institutions, other elites, the 1% who are seen to be capitalizing on the situation – all lightning rods for the unease. But are they really to blame?

Given that they, too, loathe the circumstances, not likely. The true culprit? Probably the economic cycle. It’s little different than it ever was, except lately it has been exaggerated. A double-sized growth cycle. Five-plus years of excess at the end of the cycle. Then the biggest global drop in activity since the Great Depression. Unprecedented fiscal and monetary stimulus, which initially created the illusion of recovery. Then 5-6 years of general stagnation – necessary to absorb the pre-recession excesses – punctuated with ‘serial disappointments’, the one-off weather, geological and political events we’ve become all too familiar with. Today’s problem is the perpetuity of sluggishness. Six years is a long time in anyone’s career, enough to convince even the wisest that this is some kind of ‘new normal’ – and to condition economic behavior to suit. Aquiescing to this view to some is realism, to others, the beginning of the end of hope.

Is it necessary? Not if the above sequence is true. At some point – fundamentals suggest we’re actually beyond it – the last cycle’s excesses are absorbed. Just getting back to normal activity implies a lot of growth. That potential represents hope, but it awaits the investment of those who see its opportunities. And the longer we wait, the longer we’re likely to wait.

The bottom line? Hope is in short supply in today’s economy. The search for it goes on, and the answers don’t seem far off. But the fallout of a fruitless search is discontent, and that has always risen in proportion to the length of the search.

[Source: EDC]

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