“I want to be loud and clear: populism scares me,” a leading global investment fund manager has told the World Economic Forum in Davos, setting the scene for the conference at large.
As Donald Trump prepares for his inauguration as President of the United States on Friday, global business and political leaders gathering at the Swiss ski resort are looking ahead to a year which could deliver further seismic shocks to the establishment – and the talk among them is of how to counter the rising populism which threatens to break up the current world order.
While stopping short of saying that the west was descending into fascism, Ray Dalio, founder of Bridgewater Associates, told a packed audience that rising inequality is producing a shift towards political extremism.
“I want to be loud and clear: populism scares me. It is the extremes,” he said, during a debate with Harvard professor Larry Summers, International Monetary Fund (IMF) chief Christine Lagarde, and others on a Bloomberg panel in Davos, Business Insider has reported.
“If you study the 1930s to understand what the wealth gap was in the 1930s, it rhymes. Populism is not just the belief that there is a wealth gap, although the wealth gap is the highest since the 1930s.
“In the 1930s every government that existed practically was populist. So populism by definition is nationalist and protectionist. And it’s also a matter of values. There is a sense of threat, my country is losing its values to internationalism.”
He added: “The No. 1 issue economically as a market participant is how populism manifests itself over the next year or two.”
Dalio’s company manages “about $150 billion in global investments for approximately 350 of the largest and most sophisticated institutional clients”, according to their website.
Lagarde showed similar concern over inequality, warning that, while the middle classes are growing globally, the squeeze being felt by them in the developed world is driving people towards ‘populism’.
“Policymakers need to get the signals now and think what can be done,” she said, adding: “But it needs to be granular, it needs to be regional, it needs to be focused on what will people get out of it and it probably means more redistribution than we have in place at the moment.”
And Summers, too, showed concern over Trump’s policy proposals in particular, arguing that populism is “invariably counter-productive” for the working people it seeks to help, Bloomberg has reported.
“Our President-elect has made four or five phone calls to four or five companies, largely suspending the rule of law, and extorting them into relocating dozens or perhaps even a few hundred jobs into plants in the United States,” he said.
His prescription, too, involved more redistributive policies and more government intervention, in three broad steps: firstly “public investment on an adequate scale starting from infrastructure”, as well as investing in technology and education; secondly “making global integration work for ordinary people”; and thirdly, “enabling the dreams of every young American” through provision of jobs and homes.
“Our broad objective should be to make America greater than ever before,” Summers added. “That’s very different from making it great again.”
Elsewhere across the forum similar messages were being heard. In a measure of how shaken the leaders are, two Nobel prize winning economists suggested that, in Europe, key pillars of integration may need to be abandoned to deflect populism.
Joseph Stiglitz suggested that if the euro can’t be made to work it should be ditched, while Angus Deaton said: “Breaking up the European Union would certainly help, even though it would do a lot of other bad stuff. There’s a sense of overreach. There’s the sense that people have very little control of what the EU does.”
In a year in which the French, Germans, Dutch, and possibly Italians all head to the ballot box to elect new leaders, Pier Carlo Padoan, Italian minister of economy and finance, meanwhile, suggested that what the European establishment needs is a vision to rival that of the populists.
Europe has not a strategy for this new phase,” he said. “The problem in Europe is Europe.
“The challenge Brexit and Trump is posing is that there is a vision. You may agree or disagree with that vision, But there is a challenge that the Brexit is posing and Trump is posing.
“We don’t have a vision in Europe, not a vision that is comparable in terms of power.”