London Summit—Global Overview
Greatest Threat: The Waning of Hope
Income disparity, rising nationalism and mass migration pose serious threats to global economic and social stability. They may be less of a problem, though, than a diminishing sense of hope in both developed and emerging nations, Larry Hatheway, group chief economist at GAM, said during the “Global Overview” panel discussion at the Milken Institute London Summit. “There is plenty of opportunity out there…. What the world really lacks right now is the sense that the future will be better than the present.”
Hatheway’s observation came during a largely pessimistic discussion of the economic and political landscape. Nationalism has become a barrier to trade liberalization, and government and corporate debt remains a burden on economic growth around the world, said Willem Buiter, global chief economist at Citi. Emerging and frontier nations are unlikely to see a return of the high commodity prices and easy credit that fueled growth before the recession, added Sir Paul Collier, a Milken Institute senior fellow and professor of economics and public policy at the University of Oxford.
“It really is over,” he said. “Fortunately, these frontier economies have a lot of opportunities beyond natural resources, but they’re not as obvious as ‘Dig it out of the ground and ship it out.’ ”
Buiter advised leaders of emerging nations to restructure debt and implement monetary stimulus to repair their economies.
The rise in nationalism and populist politics in Europe and the United States has been fueled by migration and widening income inequality, most of the panelists agreed. Without immigration, Europe “becomes a stagnant and boring place,” Collier said. However, he noted that if unchecked, it could pose a threat to the social cohesion that enabled the creation of inclusive social welfare institutions.
“Obviously, you don’t want identity based on ethnicity,” he said, but “at some stage migration, left to itself, will accelerate, and there is a risk that as that happens, you undermine shared values.”
Populist politics may also impair the United States’ ability to respondto global crises, said Ana Palacio, a member of Spain’s Council of State. Expansive, global thinking has been absent in the political debate heading into the 2016 U.S. elections, she observed. The political discourse “is not very enlightening. Unfortunately, in this sense, the United States is going European. When you listen to the debate you think, ‘This is not my United States. This is just any European debate.’ ”
Hatheway expects rising employment in the U.S. and Europe to reduce income inequality by creating more competitive labor markets. Economists are seeing signs of wage inflation in the UK, and in the U.S. and Japan, there are more job openings than applicants.
“We’re seeing that tightness appear that will restore distribution of income,” he said, “which will have economic benefits, conferring greater stability on the expansion, but also will have political benefits.”