• Sophie Heading, Expert |

A couple of months ago, I wrote about the most dominant macro force of our generation (PDF 2.8 MB): social populism, or the ever-expanding group of people around the world who believe that the system is no longer meeting their needs.

After watching the West Wing-style storyline of the past couple of weeks play out in the media, I thought a timely reminder was in order of why it may not be all as bad as the news cycle (or the general trajectory of 2020!) makes it seem.

The caveats: the devil is in the detail, this is probably not the mainstream view, and this is neither good nor bad. But my view is that polarization on the political spectrum, combined with the strength of democratic institutions, means that ‘Western’ elections on their own will not radically change the direction of travel.

Populism vs. Polarization

Although social forces are manifesting differently in markets and regions, I think there are two simple threads worth following:

  1. In many ways, I believe that the middle class no longer considers itself to be net beneficiary of globalization. For the purposes of this blog, let’s call this populism. Although it recently has been seen to be the bad boy of 2020, populism itself can be a positive force for change. It forces a rethink of the social contract with citizens, and in many cases, has brought about positive social and economic reform in a number of countries and territories.
  2. In my view, economic and political models are coming under significant pressure, all around the world. Whilst populism may be driving reform, the more existential, structural challenges to political systems come from polarization

Society may be disillusioned, but it is not disengaged

Social populism combined with polarization – that is, a widening gap in values, ideologies and perceptions of equality – is interacting with other macro forces (political, economic, environmental, technological) to redefine the way we view the world (PDF 2.8 MB). Specifically, the way we view market economics, productivity and the purpose of a company, through five Geopolitical Face-offs (PDF 2.8 MB).

But when this divergence in social views is mirrored by polarization on the political spectrum, the resulting division of government (rightly and democratically) makes the path of translating politics to policy much harder. Regulation becomes stuck.

So a (divided) but engaged public pushes for (potentially divergent) reforms, which the elected government will struggle to implement due to (ironically) the strength of its democratic institutions. The more positive flip side of that is that policy that does get enacted is generally supported by both sides of the public ‘fence’.

Sclerotic policy is predictable

My argument? In a polarized world, the outcome of elections in the ‘Western’ world, in and of itself, will not radically change the direction of travel. Of course, there will be ‘winners’ and ‘losers’ from any election in terms of sectors and bilateral relationships. The capacity and capability of the country to respond to exogenous shocks may shift, institutions could even erode. But I think that broader or significant course-correction will be limited by the democratic process, and is even less likely when those issues are bipartisan in nature.

In practice then, multilateralism and trade cooperation may increase in the future with the appointment of ‘globalist’ governments, but the Global vs. Local and East vs. West de-liberalization of trade, setting of aggressive domestic industrial policy, and broader technology decoupling will likely continue. Even as COVID-19 continues to provide political coverage to automation decisions under Man vs. Machine, there will be increasing scrutiny on domestic workforces under current economic conditions to help address perceptions of ‘rigged capitalism’, while Global vs. Local policies may continue to encourage domestic onshoring where feasible. Or whilst the balance of issues may shift pending campaign priorities (for example, between digital services taxes, data protection, and antitrust investigations), digital business models and large platform companies will likely continue to face regulatory challenges and political scrutiny in line with Protection vs. Performance.

For some, this will be a good thing - for others, this will represent another failure of the system. But either way, it makes policy more predictable than perhaps you might think.