21 December 2016
Sadly, few of those wishes came true this year. Income inequality persists, corporate spending remains hesitant and infrastructure continues to crumble. As for common sense in politics, what can I say? But at least dollar strength did not derail the global economy or markets in 2016.
Of course, wishes are not forecasts, merely desires. Nevertheless, upon reflection I thought I might have overdone it. Maybe less is more? So this year my wish list is pared to one:
Our world faces enormous challenges, from improving equality of opportunity, to addressing human conflict to tackling threats to the ecosystem. But as this year’s political events in the UK, the US or Italy demonstrate, the divisions that separate us have widened significantly. Public discord is at its greatest since the 1960s, perhaps even the 1930s.
Division makes it difficult to believe that we can address our challenges. Yet the differences separating us stem largely from an inability to look beyond our compartmentalised worlds and see things from others’ perspectives.
So here are a few suggestions from a trained economist and investor as to how we could engage more empathetically:
Capitalism remains the best way to improve the human condition, but it is also a force of relentless disruption that does not benefit all. Softening its edges, even at some cost to economic efficiency, remains the best way forward.
Technological progress is the foundation of rising living standards, but much destruction lies in the wake of innovation. Human ingenuity should not be compromised, but nor should those its inventions displace be overlooked.
Education remains the best avenue for economic and personal advancement, but as its cost rises, it becomes increasingly allocated by means not merit, perpetuating class differences and unequal opportunity. Yet education has positive externalities – those who have it benefit as others acquire it, underscoring the wisdom of making it accessible to all.
Immigration is humane. It is also rational for recipient countries, not just because it can alleviate demographic challenges associated with ageing populations but because it fosters pluralism and openness, challenges us to respect and appreciate differences and therefore bolsters social as well as economic vitality. But coupled with inequality, stagnant middle class living standards and security concerns, immigration is unsettling. Open-ended immigration is not feasible, yet walls are mutually destructive. Only via constructive dialogue can better solutions be found.
Modernity, elevated living standards and access to unprecedented amounts of information do not eliminate human bias. Respect for the differences that enrich the human condition can only be nurtured by a willingness to engage, which demands listening, not shouting.
Free trade is mutually beneficial. It is positive sum, not zero-sum. Yet akin to capitalism or to rapid innovation, free trade destroys jobs and puts communities at economic risk. A sustainable policy of free trade must therefore find ways to allocate some of its benefits to provide opportunity to those it harms.
In short, if the world is to address sources of division constructively before they overwhelm us destructively we must all open our minds, strive to eliminate pre-conceived notions and clichés and re-focus our discussion on evidence and logic. We must also recognise that many of our challenges cannot be addressed by self-interest alone. Public goods, such as police or fire protection or national security, but also the preservation of the global ecosystem, can only be provided by mutual consent and cooperation.
As I write, optimism prevails in financial markets. Equity indices are making fresh highs and bond yields are rising on expectations of better growth. Prevailing investor optimism is not misguided. Tax cuts, increased government spending and deregulation advocated by the incoming Trump Administration are likely to bolster US and global growth. Economies in North America, the UK, northern Europe, Japan and China have proven resilient. Peripheral Europe is growing again. Recessions in Russia and Brazil are drawing to a close. Commodity prices have stabilised, lending support to many emerging economies.
But more capitalism alone will not suffice...lasting prosperity also requires social cohesion and opportunity for all, and it must be compatible with environmental sustainability.
So while markets surge on near-term hope, as a long-term investor I’m keen to see whether 2017 can deliver common understanding that will allow us to build foundations for enduring optimism. And understanding begins with empathy, my sole wish for the coming year.
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