After Trump: The Persistent Discontent


Supporters of President Donald Trump rally at the U.S. Capitol on Wednesday, Jan. 6, 2021, in Washington. THE CANADIAN PRESS/AP, Jose Luis Magana

The shocking scenes of Trump supporters storming the capitol building on January 6th, sometimes jovially, other times with what seemed like murderous intent, may have permanently cemented Trump’s fate. He’s been impeached, again, and efforts are being made to prevent him from running for office in the future. He may also be facing multiple criminal charges and possibly even bankruptcy.

Explanations for the insurrection both over and under explain the problem. Yes, Trump is a demagogue and its true his supporters have been radicalized in a number of ways, including conspiratorial thinking and racist ideas about threats to white people and black lives matter. But as the saying goes, “the issue isn’t the issue”.

In a video about anti-vaxxers (people who promote ideas that are untrue about vaccines) the YouTube Channel WiseCrack pointed out that vaccine acceptance was highest during and just after the Second World War, a period of high confidence and trust in the government by the American citizenry. Today that confidence has ebbed to an all-time low, and that collapse in trust isn’t necessarily unwarranted. The rise of a managerial and technocratic elite has placed an unacceptable distance between citizens and their governments, while government failures seem never to lead to any improvements or accountability.

The cost of these mistakes remains high. In Europe it has led to Brexit, months of protests by “Yellow Vests” in France, the erosion of the center-left ruling party in Germany and a resurgent far right party, the decline of liberal democracies in Hungary and Poland, and a number of anti-establishment parties getting control of small countries like Greece and big countries like Italy.

Canada, forever looking reasonable and calm compared to other countries, is having its own struggles. Prior to the pandemic we had rail protests across the country, have shown a consistent inability to get large infrastructure built and continue to see the erosion of our manufacturing sector. Pandemic response itself has been a laughable mess, from overconfident and condescending pronouncements on the ineffectiveness of masks and accusations of racism about concern of the virus, to complete reversals of position. Vaccine acquisition and distribution has also been underwhelming. The federal government didn’t seem to get enough at the right time, and provincial governments have struggled to get the vaccine to those who most need it (This is nothing compared to the US, where health care workers are actually refusing the vaccine).

In this moment, China can make credible claims for being a useful alternative to the US and other Western countries in its growing sphere of influence. A competent dictatorship with substantial economic growth and a rising standard of living must seem appealing to autocrats and some global citizens alike.

There are other concerns too. The gap between Main Street and Wall Street has grown ever wider. During early months of the pandemic the collapse of jobs and business was mirrored by a resurgent stock market that began gaining steam even while the real economy was crashing. This disparity between the world of investing and the world we live in only heightens inequality concerns. Ownership of stock by Americans closely correlates with age, ethnicity, wealth, and education. For many people today, inequality continues to look like a political class consorting with a billionaire class that don’t play by the same rules that govern everyone else. In a pandemic Jeff Bezos gets rich, and you get fired.

This is obviously not universal. Different countries have different problems and the degree to which these issues are felt by individuals depends a great deal on background and government. But even if we assume that the American situation represents an extreme amongst Western nations, it should not blind us to the anger that people rightly felt when they learned of politicians and executives travelling outside of Canada while asking everyone else to cancel their Christmas dinners. Politicians of all stripes seemed to believe that they would be exempt from the restrictions they imposed on others and had a hard time fathoming that constituents would be upset.

Fixing these problems will not be easy. Technocrats, that is governing authority due to technical expertise, imbues our current leaders with a lot of confidence on issues where there may be no correct answers. They leave people blind to what they do not know and encourage authorities to rely on models and projections rather than real life.

Take for instance inflation. Governments and central banks are very concerned with inflation. Too little and the economy will not grow. Too much and the economy will stall while savings lose value. Inflation needs to be “just right” which is currently considered somewhere between 1% – 3%, with a target rate of 2%. According to Statistics Canada, the CPI since 2010 has been around 1.5%, just below the current 2% target. In other words, $100 in 2010 would buy roughly $85 of similar goods today.

But would it?

Inflation has been higher and felt more directly by lower income people. Using data collected by Statistics Canada (you can click the link below to download the spreadsheet with all these numbers and my calculations) for retail food prices between November 2010 to November 2020, we can see that many food staples have become more expensive in the last decade at rates in excess of core inflation. In that time, the price of beef has risen between 4% to 7% per year depending on the cut. Potatoes have risen in price over 10%, onions by 5.5% and carrots by 6.3% a year. Baby food rose by an average of more than 9% a year, and toothpaste by 8%. Almost none of the staple groceries tracked by Statistics Canada had price increases contained to the 1.5% official rate of inflation, instead many rose at rates double that or more.

Like real estate, another asset class that continues to defy gravity without an impact on inflation but a dramatic one on the population, a rising price of food that remains unaddressed only highlights the different reality Canadians seem to be living from our elected officials. Despite a great deal of lip service about the importance and risks facing the middle class, governments have yet to seriously tackle these issues, or make them central in elections. Instead we continue to deal with these problems in a patchwork of modest tax credits and empty rhetoric.

I, and I assume many others, would like to put the Trump era behind us and treat it as an anomaly. But to do so would assume that Trump had landed (as had Brexit and other populist movements) fully formed but alien to us, and that we had been taken by a madness that can finally be broken.

I think we know this is not true.

From the moment that Hillary Clinton called Trump supporters “Deplorables” (or half of them at least) there has not been a clearer delineation between those that control the cultural zeitgeist, and those who have come to resent it. We have a similar divide in Canada too, with Alberta constantly at odds with more “progressive” provinces over environmental issues, and Quebec (doing as it always has) putting its historic/cultural/religious identity ahead of more multi-cultural aspirations of equality. Toronto and Vancouver may sit at the centre of Canada’s cultural output, but these two economic powerhouses do not share much with the rest of the country.

Our prolonged period of peace, wealth and stability has tricked us into believing that unrest, dissatisfaction, and failure are aberrations. But the history of Canada, the United States, Great Britain, and other European powers has been one of long periods of unrest. William Jennings Bryan, before being disgraced in the Scopes Money trial, had been a tireless campaigner for agrarian populism. In Canada we too had an agrarian populist movement (interestingly enough, similarly conservative and steeped in conspiratorial anti-Semitism, prominent in Alberta and Quebec) that only really started to disappear after the mid-60s and not totally until the late 80s. Political dissatisfaction can have long legs.

Five people died as a result of the assault on the capitol on January 6th, and one was Ashley Babbitt, a Q-Anon, MAGA loving Trump supporter who had breached four lines of security in an attempt to overthrow the government on behalf of Donald Trump. But while her motives and goals were deeply misguided, her past remains a window into a dispiriting world for many Americans. A fourteen year veteran of the United States air force, Babbitt now owned a pool supply business that was struggling, forcing her into a short term loan with a 169% interest rate. Medieval Europe had better rules governing usury than California. Or consider the North Carolina woman who took to social media because she couldn’t afford the $1000 insulin prescription for her son. Insulin, among other drugs in the United States, has been reported on multiple times for its rising price. Despite that, no government or corporation has been able to act in such a way to curb the rising price of a life saving drug that been around for a century.

All this is baked into America, and represents a growing risk for the future. Though the country has a more dynamic market, holds more patents and has some of the largest corporations, the failure to consider the effects of pushing up stock valuations at the expense of everything else will likely only deliver diminishing results in the future, both for investors like you, but also for the global liberal order that provides much of the stability we rely on.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of Aligned Capital Partners Inc.

The New Class War: Can Our Society Be Made More Equal?

New Class War

Amidst all the various news during this ongoing pandemic, reports that American billionaires are getting richer, particularly those focused in tech, is unlikely to bring anyone much comfort. Though much is often made of income inequality, I tend to believe that inequality in of itself is not a pressing concern for most people. What does stick in the minds of your average citizen is that no matter what tragedy seems to befall the world, the richest keep getting richer, while their own situation continues to erode.

There are two interconnected factors at play here. One is how billionaires continue to do so well. The other is related to declining fortunes and mobility for a middle class that is less middle, but increasingly more class orientated.

The rise of a super-rich has a great deal more to do the dominance of the stock market in an age of globalization than any other single factor. You’ve probably heard some statistic like this before, that in the past a CEO would only have made 20x more than their lowest paid employee, only to find now that the ratio is 278x more than the average worker. Much of this shift has been a result of moving compensation for CEOs and C-level executives into stock options, a move aimed at improving governance, but has instead hyper charged the importance of stock returns in an increasingly globalized world.

Land of Promise

In his book Land of Promise by Michael Lind, he has this to say about globalization and global trade: “Between the end of the Cold War and the crash of 2008, globalization resulted in the organization of one global industry after another as an oligopoly, with most of the transnational enterprises headquartered in the United States, Europe, or Japan…Two companies, US-based Boeing and Europe’s Airbus, had 100 percent of the global market share in large jet airliners. Among their suppliers, the global market for jet engines was divided among three firms: GE, Pratt and Whitney, and Rolls-Royce. Microsoft enjoyed 90 percent of the global market share for PC operating systems. Four firms divided 55 percent of the PC market among themselves, while three companies shared 65 percent of the mobile handset phones. Three firms dominated the world market in agricultural equipment (69 percent) and ten companies dominated the global pharmaceutical market (69 percent). Ninety-five percent of microprocessors (chips) were made by four companies – Intel, Advanced Micro Devices, NEC, and Motorola. Four automobile companies – Gm, Ford, Toyota-Daihatsu, and DaimlerChrysler – manufactured 50% of all cars, while three firms – Bridgestone, Goodyear, and Michelin – made 60% of the tires. Owens-Illinois and Saint Gobin made two-thirds of all glass bottles in the world. Concentration in global finance was accelerated by US deregulation, which allowed the emergence of a small number of US megabanks, some of which grew even more during the Great Recession when, with the support of the US government, they absorbed failing banks, as Bank of America took over Merrill Lynch and JP Morgan Chase acquired Washington Mutual.”

However you may wish to slice it the system of globalization has been a huge boon to the wealthiest globally, consolidating wealth amongst an increasingly narrow group of companies and the people who own the bulk of the shares within those companies. And the more importance share holder returns have taken on, the more consolidated those companies have become.

The second problem I’ve mentioned is that of a middle class that is increasingly stratified. While the wealthiest keep getting wealthy, the middle class has followed suit, locking in wealth and reducing income mobility. While we may not consider life in the 1950s or 1960s particularly egalitarian, aspects about that more sexist and racist time in our past better facilitated economic mobility. For instance, a world where women did not hold many corporate positions of authority and didn’t work after marriage was also a world where women were more capable of “marrying up”. In contrast, today educated professionals marry other educated professionals. A surgeon is less likely to be married to a secretary and more likely to be married to another surgeon. The economist Tyler Cowen has called this “matching” in his book The Complacent Class, with people better able to “match” to those with similar interests and backgrounds. The effect of this “matching” has been to stratify wealth and decrease social mobility within the middle class.

the-class-sketchEducation represents another significant change that is stultifying the middle class. Education, particularly secondary education took on increasing importance in the 1980s, as those with university degrees started to out earn those with just high school, and those with professional designations (like lawyers and doctors) out paced those with just an undergraduate degree. Would more education fix this? Not really. As the cost of education continues to rise and new technologies filter into even white-collar jobs, young lawyers and accountants struggle to find work, while the management of major companies hangs in longer. The return on education continues to decline even as the costs go up, leaving those who come from wealthier educated families financially better off and better socially connected than those coming from lower income families trying leverage education into higher tax brackets.

Similarly, costs of living continue to climb in essentials. In Toronto, where housing prices have climbed steadily for the last two decades, it has given birth to an intransient NIMBYism. Homeowners, having taken on large amounts of debt to get into the housing market are generally protective of their neighborhoods and tend to push back hard on attempts to increase density for fear it pulls down housing value. Poorer neighborhoods in cities like Toronto find themselves pushed out by gentrification, an ironic blend of resistance to development that increases the price of living while denying the development that could keep prices lower for a more diverse group of residents to live together. The effect is one where neighborhoods may indeed be racially diverse, but not income diverse. The effect to a middle class is to be both more precarious and less open.

The response from governments to both these changes hasn’t been encouraging. Playing around with the tax rates, trying to force people into expensive four-year degrees, potentially embracing a universal basic income (UBI) amounts to tinkering with the system, not fixing it. And while UBI has garnered a lot of interest, it smacks of an acceptance of the current situation. If you can’t get ahead, here is some money to make life more tolerable. A population of people dependent of a government stipend is not a population that is very free. But if politicians efforts are well meaning, distrust of them remains understandable, as the political class and billionaire class rub elbows at places like Davos, recommitting to strengthening the very system that seems to be the source of many of the present issues.

Over the past several years I have dedicated this blog to the issues I think that remain most pressing from a financial standpoint to our society, frequently touching on issues of housing prices, technology, anti-urbanization, populism and the middle class. All these issues seem to be accelerating, and if there is a thought that might bind these ideas together it is a sense of loss of imagination on how we deal with major issues. In addition to a consolidation of corporate power and wealth amongst a smaller group of people, we also see fewer companies with IPOs, and fewer companies listed on the stock market in general. There is also less imagination from our political class, which remain wedded to a narrow set of ideas about how to deal with new problems.

Essential Democracy

Successful societies like Canada can be handcuffed by their past achievements, limiting options to things already tried before. But problems that do not get fixed don’t go away. Instead they fester, presenting themselves in other more threatening ways. As I write this there are riots in Minneapolis, ostensibly about the death of a citizen in police custody (part of a long list of Black Americans killed at the hands of police for nonviolent offences) but that riot has swiftly turned towards an affordable housing project and local big box stores in addition to the police. In a 2016 poll, only 30% of Americans born in the 1980s believed that living in a democracy is essential, the lowest since such polling had begun. In Europe polling showed that the core countries of the EU; Spain, France and Italy, had largely negative views about their current economic situation a decade on from the Great Recession.

Postive Economic View Europe

Now, in the middle of this global pandemic, many of these fault lines are being exposed. There may be no better way to sum up our situation than to speak of Walmart, a store that exists and thrives because of the globalized order, importing products from China. According to Ian Bremmer, the largest employer among Fortune 500 companies is Walmart, employing 2.2 million people, easily out pacing any other single company. In 2003 the CEO of Walmart, H. Lee Scott, earned 1500 times as much as a full time Walmart employee.

This trend is not confined to Canada or the United States. It is global, and affects China and India as much as it does the West. But the effect on populations of an economic story that increasingly benefits the wealthiest, while making middle classes more precarious and defensive is to undermine the legitimacy of democracies. The backsliding of democratic countries, and the erosion of the international order is connected to these domestic economic challenges. The pandemic is speeding up this inequality effect, and how we rise to meet it will play a large roll in deciding who calls the shots in the 21st Century.

Miniature people standing on piles of different heights of coins. The concepts of person and wealth.

Author’s Note – In addition to the normally sourced articles I’ve relied on several books for this article, they include:

  • Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland
  • The Retreat of Western Liberalism by Edward Luce
  • The Complacent Class by Tyler Cowen
  • Income Inequality, The Canadian Story (Volume 5), Edited by David A. Green, W. Craig Riddell and France St. Hilaire
  • Land of Promise by Michael Lind

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

Journal of a Plague Year – In Defense of the Lockdown

Plague Year

While curves continue to be bent and geopolitics continues to become both more silly and more frightening than anyone ever thought possible, populations of countries remain unsure and troubled about whether they have made the correct choice of trying to beat COVID-19 through lockdowns and aggressive social distancing. Predictions of economic doom run rampant, ranging from serious recessions to the potential for a depression not unlike that of the 1930s.

With nothing to do but sit at home and twiddle our thumbs, either letting our house fall into total chaos or be cleaner than ever (a battle largely determined by how tired I am and how many cookies my kids have had) making predictions and considering alternative paths to beating this virus occupy considerable mental space. How will we know whether the unprecedented steps we have taken were the correct steps to take? What dark and strange future awaits us on the other side? I’m here to put your mind at ease, both because this situation is not unprecedented, and because we may not have had any other choice.

Let’s start with precedent. In an interview with Australian talk show host John Anderson, historian Niall Ferguson mused that future historians would regard our response to the pandemic as a mistake. This is an understandable position given the continued uncertainty around much of the virus. Is it very dangerous? Does it only affect the elderly? Do we even know how many people have it? Undoubtedly the biggest threat from the virus is what we don’t know about it.

But the assumption that it is the lockdown that is hindering the economy are belied by the available evidence. For instance, Sweden has been a focus through much of this since it hasn’t locked down its economy fully. Though schools have been closed and people have been advised to socially distance, restaurants and bars have been allowed to remain open. But estimates are that business has dropped off dramatically. In fact, despite having more of their economy not under lock and key does not seem to have materially changed the country’s fate, with early economic predictions of the contractions expected to be around 7% of GDP. That’s in line with other European neighbors.

In a similar story, the state of Georgia’s efforts to open early were met with disappointing results. People, worried about a virus that has a surprising amount of variability and high level of infection simply don’t want to go axe throwing, drink in crowded bars and go bowling. With the virus still being prevalent the thing restricting economic activity is not the lockdown, it is the virus.

Much is being made of the 1918 Spanish Influenza and this is an understandable place to jump to; the last memorable global pandemic that seriously interrupted the lives of people. Economists studying that event have concluded that “cities that implemented early and extensive non pharmaceutical interventions (like physical distancing and forbidding large gatherings) suffered no adverse economic effects over the medium term. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided.” Other lessons drawn from the 1918 pandemic were not to give up too early on restrictions and that a multi-layered approach was what worked best.

But precedent exists much farther back. In Daniel Defoe’s work “Memories of a Plague Year”, a book once thought to be a work of fiction, but now believed to be based on the diaries of Defoe’s uncle who lived through the last great plague in London of 1665, all the hallmarks of our modern response can be found in that bygone era. Wealthier people escaping to their cottages? From Defoe: “It is true, a vast many people fled, as I have observed, yet they were chiefly from the West End of the Town; and from that we call the Heart of the City, that is to say, among the wealthiest of the people.”

220px-Great_plague_of_london-1665

How about our daily obsession to see if the curve is “being bent” and watching the infection rates? In 1665 concern over the spread of the plague (called the distemper) caused people to look “towards the east end of town; and the weekly Bills showing the Increase of Burials in St. Giles’s Parish…the usual number of burials in a week, in the parishes of St Giles’s in the fields, and St. Andrew’s Holborn, were from 12 to 17 or 19 each, few more or less; but from the time that the Plague first began in St. Giles’s parish, it was observed that the ordinary burials increased in number considerably.”

What of economic activity? It has been estimated that somewhere between 25%-30% of the economy has been restricted, but in 1665 “All Master Workmen in Manufactures; especially such as belonged to Ornament, and the less necessary parts of the people’s dress, cloths, and furniture for houses; such as Riband Weavers, and other Weavers; Gold and Silverlace-makers, and…Seemstresses, Milleners, Shoemakers, Hat-makers and Glove Makers: also Upholserers, Joiners, Cabinet-Makers, Looking Glass Makers; and innumerable trades which depend upon such as these; I say the Master Workmen in such , stopped their work, dismissed their journeymen and workmen, and all their dependents.” You get the idea. The economy shut down.

source

Worried that people believe lunatic conspiracies, burning 5G towers across the world? Conspiracies depend on context, and in 1665 there were plenty of people pushing nonsense ideas, including astrologers spinning stories, and a host of charlatans that were “a worse sort of deceivers…for these petty thieves only deluded them to pick their pockets, and get their money; in which their wickedness, whatever it was, lay chiefly on the side of the deceiver’s deceiving, not upon the deceived.” Amulets, charms and potions, signs of the zodiac and any number of other bogus ways to defend the person from the plague were sold widely to a gullible public desperate for protection.

Great LevelerBut what of the predictions we keep hearing about? That life will be forever changed by the events we’re living through? While I have a great deal more to say about the nature of prognostication, I’ll keep my comments here brief. In general history shows that humans don’t tend towards radical changes following big, but temporary upheavals. Instead, crises like the one we are living through emphasize existing weaknesses within the society.

In his book “The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty First Century”, author Walter Scheidel points out that during the first big years of the plague, which came in the 1300s, the high death rates from plague changed the existing relationship between land and labour. For a society of feudal serfs this meant that serfs could demand wages from their lords, and the lords felt compelled to pay lest their lands remain fallow. Behaviours changed too, but only in as much that hedonism and charity increased to match the scale of the devastation people were living through. In response to our own situation charity, certainly that sanctioned by the government, has been widespread. Whether we might count the volume of baking as a form of hedonism will be left to others to decide.

Wages & Covid

But we should largely discount predictions of an economy collapsing and a society that will not wish to do anything ever again. Cruise ships, house sales, air traffic and eating out will return as confidence returns, though there will be losses along the way. But the real damage to the economy, and the people within it, will likely remain along lines that have already been established. As fewer Canadians work in good manufacturing jobs and more work in the service sector, earning marginal wages, they will continue to take the brunt of the economic hit of the lockdown. Just as likely will be that efforts to decouple production from China will lead to greater automation in manufacturing. In other words, more of the ingredients at the heart of the widening inequality gap.

The response to the coronavirus feels novel, to us. But in the scheme of history there doesn’t seem to be many other viable options. Life will return to normal not when the lockdowns are lifted, but when the virus is gone. But if we’re going to do something with our time it would be better spent figuring out how we’re going to address a worsening crisis of inequality, or brace ourselves for the next round of populist agitation.

Black Death 1

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

 

Is Canada’s Populism Moment Over, Or Just Beginning?

canada flag and fist

This year possibly saw Canada’s most pointless election. Though it was meant to be A VERY SERIOUS AFFAIR, the election was a gong show misleading personal attacks, the exposure of embarrassing histories and the revelation that the Prime Minister of the country couldn’t say how many times he wore blackface. Amidst all of this was the arrival of Canada’s first angry populist party under the leadership of Maxime Bernier. Bernier started his People’s Party of Canada in response to narrowly losing the leadership of the Conservative Party of Canada, in a contest that many within the party saw as rigged against him. Bernier may have agreed, and having crafted a libertarian brand as “Mad Max” thought this was the time to strike out on his own (I met Bernier during his run for leader of the CPC and was surprised at how short he was. I’m not saying that Bernier started another party due to small man syndrome, but his loss to the 6’3” Scheer may have played some roll). Maxime BHis party was a grab bag of disaffected curmudgeons and, unsettlingly, a number of quasi-racists who were obsessed with immigration.

The outcome of the election seemed to put Canada’s populism to rest, such as it was. A short lived attempt to start a “yellow vest” movement here, like in France, failed badly and tainted Andrew Scheer, the only politician to make overtures to various populist movements. Maxine Bernie’s party failed to win a single seat, including his own, and concerns that a populist wave was crashing down on Canada seemed unfounded. And yet shortly after the election we seemed embroiled in “WEXIT”, a nascent movement for Western Independence.

WEXIT probably won’t go anywhere, but Canada does have serious problems in the west that the much of the rest of the country seems disinterested in, and if left unaddressed could fuel years of populist outrage and self destructive behaviour. For instance, where you aware that mortgages more than 90 days in arrears in Alberta and Saskatchewan were now wildly out of step with the rest of the country?

Mortgages

Or that the unemployment rate among young men in Alberta had now reached 20%? For much of the last two decades Alberta has been a major engine of economic growth for the country and a source of opportunity for people across Canada. Today it has been reduced to the status of a Spain or Portugal (albeit with better financials).

Unemployment ALberta

51A5iiYoarL._SX324_BO1,204,203,200_In their book “Revolt on the Right: Explaining Support For The Radical Right in Britain” by Matthew Goodwin and Robert Ford, the authors note that the rise of populist UKIP party is “not primarily the result of things the mainstream parties, or their leaders, have said or done…instead, is the result of their inability to articulate, and respond to, deep-seated and long-standing social and political conflicts”.

This problem has been exasperated by an increasing focus on middle-class swing voters who have become seen as central to political success compared to people who have been considered “left behind” in a political and economic sense. They go on to point out that the major parties have “avoided high-profile efforts to mobilize the concerns of the ‘left behind’ voters because both parties have concluded, that electoral success or failure will depend on the support of educated middle-class voters, who hold a very different set of values and priorities.”

This rings particularly true where the priorities of Alberta have be seen to be dismissed by the federal government (despite the acquisition of a pipeline) which has rushed to the aid of an Oshawa car plant and was so embroiled in helping SNC Lavalin it led to a damaging scandal. Over the last two elections Alberta looks increasingly isolated, a sea of blue in a country of red, more politically hegemonic and less diverse than the rest of the country, single-mindedly focused on one industry to the detriment of everything else. For its part Alberta feels under siege, suspicious of political parties that would sacrifice their economic future for environmental priorities they now regard as suspect.

Canada 2015Canada 2019

In an article for The Atlantic in January of 2018, David Frum notes that “If conservatives become convinced that they cannot win democratically, they will not abandon conservatism. They will reject democracy.” The situation isn’t quite that dire for Western Canada, but I think that if political parties cannot learn to articulate and respond to deep seated social and political conflicts in Canada, western Canadians will not abandon their own self interests, but they might abandon some of the tenants of confederation.

Over the last few years the rise of populism has frequently been treated like some kind of fever waiting to break, or a tide that must eventually recede. From a political standpoint this makes some sense, as political historian Richard Hofstander had noted about third parties in the US; “challenger parties are like bees: once they have stung the system they quickly die.” But political upheavals and realignments do happen, and with Brexit now almost a certainty and confidence growing that Trump may win a reelection despite impeachment our recession of democracy may be more prolonged than we’d like to believe.

As most people have noted our current situation has a great deal to do with the events of 2008, which a decade on has left a lasting economic impression on society. Canada sidestepped the worst of 2008 and has enjoyed relative economic strength and political stability. Mostly. But with Canadians being one of the most indebted within the OECD, its worth asking the question what will the rest of Canada look like if we face a serious economic crisis? Will the words “peace, order and good governance” still define the country, or will we awaken a more politically agitated populace? One that has less tolerance for slow and steady results and is far less kind to politicians that seem incapable of addressing major issues?

Sex and Education and Wages

Insolvency RatesMany populists already exist in our politics. Issues around education, housing and debt remain hot buttons for the electorate. And yet our last election spent far more time focused on a speech by Andrew Scheer from over a decade ago. Does that seem like a political class articulating and responding to long standing and deep seated issues, or one that has learned to master the art of getting elected? Education costs continue to climb and yet the return to students is considerably lower, and prospects much worse for those with only high school diplomas. Debt in Canada has continued to rise, a story that seems evergreen, but insolvencies have also started climbing. Currently insolvencies remain low overall, but given the large amount of Canadian debt, what might it take to push people over the edge? Which politician can honestly say they’ve got a good plan to deal with these problems?

So, is the populist tide turning? I think it is too early for us to say, and Canadians should be wary of people arguing that Alberta’s WEXIT is a silly tantrum. Instead we should watch with a cautious eye towards the West. Where Alberta goes we may well follow.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

 

Notes from the Edge

cover_180616_issue
The June 18th cover for The Spectator

 

With the BREXIT vote now only days away its worth taking a moment to consider the dramatic political shift that seems to be happening around the globe. Where once left/right politics dominated, or pro-capitalism vs. pro-socialist forces clashed, today the challenge is far more frightening. Today we sit on the brink of the end of the new internationalism and face the rise of old nationalism.

In Jon Ronson’s funny and insightful book THEM: Adventures with Extremists, the author describes his final meeting with a founding member of the Bilderberg Group (yes, that Bilderberg Group) Lord Healy, who explains that at the end of the Second World War a real effort was made to encourage trade and economic growth as a way of deferring future wars. The Bilderberg Group is but one of many, slightly shadowy and often undemocratic, organizations that exist to further those goals, encouraging powerful people to air out their issues and discuss ways to make that vision of the world more likely.

But for millions of people the new internationalism that has been fostered through trade agreements, globalization and corporatism has made the world more hostile to millions of “left behind” voters. It has seemingly given power to cigarette manufactures in Africa, or created unfair and uncompetitive “tax free zones” in South Pacific nations. It has fostered sweatshops in Sri Lanka, dangerous factories in Bangladesh, all at the expense of industrial workers in Western developed nations. In Europe this internationalism is blamed for feckless leadership on humanitarian, fiscal and bureaucratic issues. In America it is blamed for the rust belt through the mid-west.

The response to the growing frustration on all these issues has been a resurgence of nationalism and political “strong-men”. Putin’s Crimea grab was as much about returning pride to Russia as it was about diverting attention from his own domestic issues, reestablishing  Russia’s place as a significant regional power. Across Europe there are rumblings, both of renewed regional nationalism from within countries, as well as growing concern that a “leave vote” in Brexit could destabilize the entire EU experiment. In the United States these issues have given power to the Donald Trump populism, but have also fired the Bernie Sanders campaign.

Energy to these issues have undoubtedly been fueled as a result of 2008, a disaster so wide reaching and so disruptive to the Internationalist narrative about the skill set of the political and corporate classes that it shouldn’t be surprising that millions of people seem ready to do irreparable harm to the status quo. The subsequent inability to provide a strong and sustained economic recovery like some recessions of the past has only made matters worse. Every ill, every short coming, every poor decision and every injustice inherent within the structure that we inhabit is now expected to be resolved by setting the whole thing on fire and assuming that the problem is solved.

I am constantly surprised by how little people actually want to see changed by referendums like these. During the Scottish Referendum, the expectation was that Scotland would continue on exactly as it does, but without any association to London. The Leave campaign in Britain is quite sure that while Britain will no longer be part of the common market, a deal can be worked out that will allow free trade to continue unabated and for British people who live in places like Spain and Italy to continue to do so without visas or travel restrictions. Donald Trump is quite convinced that he can have a trade war with China without upsetting American business interests there, and the host of smaller countries like Venezuela or Turkey can slide into despotism without adverse impacts to their international reputation.

We’re at the edge, with the mob pushing for change (any change) with little real understanding of the consequences. It is little surprise that the technocrats and political establishment are so unlikable and so uninspiring in the face of the radicals and revolutionaries that want to see a sizable change that can’t be brought about until everything is torn down. And while it is true that the status quo can’t remain, it is equally unlikely that the end of the EU, or a British exit will stem the tide of migrants from Eritrea, or that tearing up NAFTA will return factories to Michigan, or that Marine Le Pen can turn the clock back on France and bring back the beret.

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I expect market volatility over the next while as investors and deal makers try and figure out the correct response to either a leave or remain vote. If Britain does leave, the next 100 days will be telling as pronouncements will be made to try and smooth the troubled waters. But the real work will come in the next 2 years, as negotiations will begin to do all the hard work that the referendum creates. You can’t just burn it all down, you have to build something in its place. How successful the reformers are at the latter will be the real test of the new nationalism.