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G10 Macro Rates Blog – The evolution of discontent

Wednesday, April 10, 2019

Latest G10 Macro Rates Blog
With Shayne Dunlap, Co-Portfolio Manager

With developed markets exhibiting the lowest unemployment levels in generations, why are their workforces not happier?
Over the last two decades the force of globalisation has pushed much of the worlds manufacturing and heavy industry to lower cost base economies into emerging markets (EM). This flow has resulted in many millions of EM workers being dragged out of poverty. That is a global success story that we should long remember and celebrate! Additionally, the populations of the developed market (DM) economies have directly benefited with the resulting access to cheaper goods and products – yet they are not happy! Even with many unemployment levels in the DM world hovering around multi year lows, this would seem to be at odds to the reality of discontent.

DM wage inflation is threatening, but there appears little evidence of a breakout in wages once adjusted for the cost of living. So, is our economy, with its increasing emphasis on short term contracts and freelance work – the GIG economy (a modern flexible work/life balance) – a side effect rather than a dream?

The cost of globalisation, it seems, has been 3-fold. Firstly, declining or stagnant real wages of DM workers. Secondly, increased stress, from external competition of both EM workers and automation of low manual jobs. Finally, the dragging down of living standards (due to the decline in real wages) – is now at the point that many working household finances are within sight of those living off state benefits.

The discontent from these labour market transitions have taken a more surreptitious path. Gone are the unions and strikes of the 1960s & 1970s. The results now show up in referendums and elections with the political elites and established body politic being caught out on an increasingly regular basis.

Where next for the disaffected? What happens when they realise that the campaign slogans of Brexit, 5 Star, AFD and Trump (etc.) do not deliver the results they were promised? What will be the next permutation this slow revolution?

We think politics and economics is trending towards more polarisation and greater extremes. As a potential response, the DM world has started to explore solutions, such as the “Living wage” – subsidised by the capital rich corporate sector, such as the FAANGS; or negative tax on low income workers; or even modern monetary theory (MMT).

We suspect those with the most to lose – think baby boomers, the political establishment and high net worth individuals – are pondering the tactics required to avoid any escalation of the anger. This should create some very interesting policy responses in the coming years. All this points to increased uncertainty within the investment arena and a far harder ability to predict the future. 

For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below

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IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation in respect of such securities or other financial instruments. Where past performance is shown it refers to the past and should not be seen as an indication of future performance.

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