Quote: Global Political Systems are Breaking Down
Economist Steen Jakobsen described a "slow-moving sort of grind" affecting global productivity and stability. He argued that the political contract with voters is failing worldwide, leading to a breakdown of systems and a rise in populism.
- The "political contract" is a concept rooted in social contract theory, where citizens tacitly agree to give up some freedoms in exchange for state protection and the maintenance of social order. Philosophers like Hobbes and Locke argued this contract is legitimate only as long as the state fulfills its protective duties. - Global labor productivity growth has been weak, with OECD countries seeing an average increase of just 0.6% in 2023. This figure masks significant differences, as the euro area experienced a 0.9% decline, its largest drop since 2009, while the United States saw a 1.6% increase. - The slowdown in global productivity is not a new phenomenon; it was a broad-based trend for a decade leading up to the COVID-19 pandemic. Persistent structural issues hampering growth include weak investment, aging populations, and trade fragmentation. - Studies have found a significant link between economic insecurity and support for populist parties. Research covering the EU from 1980 to 2020 shows that economic uncertainty is a key driver of populist voting behavior, with factors like unemployment rates directly correlating with increased support for populist movements. - The rise in populism is also linked to specific economic trends in developed nations, including rising income inequality, increased costs for essential goods like housing and healthcare, and declining job stability. - As one of his "Outrageous Predictions," Steen Jakobsen has speculated about the "end of capitalism" in the U.S., suggesting the government may have to make its bonds tax-free to manage spiraling debt. He argues this would dramatically increase government control over the economy and disrupt market-based price discovery. - The connection between economic hardship and populism is not automatic; it is significantly influenced by public trust in institutions. IMF research found that economic distress is more likely to translate into votes for populist parties in countries where trust in political institutions is already low. - Looking ahead, Jakobsen anticipates a period of high market volatility and has pointed to structural underinvestment in tangible assets. He foresees massive spending on energy, infrastructure, and commodities over the next decade.
