The timing could hardly be better. In six months time, the annual festival of globalisation takes place in Davos, the small town in Switzerland where the World Economic Forum holds its annual meeting. The helicopters and the limos will bring the bigwigs up from Zurich into the high Alps for four days, when they will talk about the need for inclusive growth and a capitalism that works for everybody. At the end of the week, the choppers and the limos will take them back down the mountain and nothing will change.
Next year might be different though. By chance, the Friday of Davos week in 2017 falls on 20 January, the day when the next US president will be sworn in. It could be Donald Trump.
As a businessman, Trump would fit in well at Davos. He is a billionaire who likes to cut a deal, and Davos is full of filthy rich people who hoof it to Switzerland each January not just for the skiing and the fondue but to closet themselves in a quiet room well away from the TV cameras to do some business.
As a president, though, Davos would have some issues with Trump. The WEF priesthood adheres to an orthodox creed: a belief in free markets, open borders and liberalised trade. Its dream is to create a tech-savvy, barrier-free, global village.
As far as one can tell from his various and often contradictory policy statements, Trump is running for office on a completely different ticket. He is a throwback to a different era, when the US was protectionist and isolationist, which it was for much of its history. It has only been since the end of the second world war that it has championed free markets and taken on the role of global policeman. No question, Hillary Clinton would be much more to Davos’s taste.
To say Trump’s economic policies are a work in progress is something of an understatement. It is not clear how he squares promises of tax cuts three times bigger than those offered by George W Bush with his insistence that the US national debt is too high. Like Bush and Ronald Reagan, he seems to set great store by the idea, popularised by the economist Arthur Laffer, that tax cuts generate higher levels of growth and so pay for themselves. This has not, however, worked in the past.
Trump has also equivocated about the minimum wage. At one time, he said setting the rate should be left to individual states. More recently he has proposed that he would raise the national minimum wage. As far as Wall Street is concerned, Trump has been more like a traditional Republican, saying he would repeal the Dodd-Frank Act, which sought to curb the excesses of the financial sector. This looks curious for someone trying to surf a tidal wave of populist anger against the bankers.
According to the traditional rules of politics, Trump should not have a prayer. He is loud and obnoxious. He seems to enjoy insulting large sections of the US electorate, women and the Hispanic community in particular. As Russell Jones said in a recent note for Llewellyn Consulting, his inventory of policy proposals are striking for their naivety and incoherence. “It is a litany of simplistic ideas, with no guiding principle, little clear direction and no overarching notion of how these various initiatives might fit together to deliver short-term macro-economic stability, or improved long-term growth potential and flexibility.”
The Labour peer, Meghnad Desai, offered a more positive appraisal in an analysis for the OMFIF thinktank. If he became president, Trump would be the first occupant of the White House since Eisenhower not to have held elected office, although Ike did of course mastermind the invasion of France in 1944.
Desai envisages Trump doing what Eisenhower did in the 1950s, with a big programme of investment in the country’s old and decaying public infrastructure. With interest rates so low, Desai says a capital spending programme of 5% of US GDP would raise $900bn (£680bn), draw in private investment and go a long way to fulfilling Trump’s goals of boosting growth and raising living standards.
So could he really win? You only have to look at the way Clinton has been forced to take a tougher line on trade and promise her own infrastructure package to receive the answer. Few US political experts gave Trump a prayer of securing the Republican nomination when he first announced his run. They take him a lot more seriously now, as well they should, because if the opinion polls are right he will give Clinton a real run for her money.
Trump’s core economic message is simple. If globalisation is such a great idea, why is it that only 15% of the additional growth the US has generated since the 1970s has gone to the workers? The other 85% has boosted corporate income, which helps to explain why the pressure for free trade deals is coming from the boardroom rather than the factory floor.
Clearly, there is an element of nostalgia to this, but Trump’s appeal is not just about nostalgia. The fact is that the US middle class, which in Britain we would call the working class, really did enjoy more rapid increases in living standards and a much higher degree of job security three or four decades ago. It is also true that the offshoring of production has brought benefits through cheaper imports, but these gains tend to seem more nebulous than lost jobs and year after year of flat or falling pay.
A quick look at what has been happening to the US economy in recent years sheds light on the problem. As in Britain, jobs have been created but productivity has been exceptionally weak. One reason is that companies have not been investing. Rather executives have been borrowing money cheaply for share buyback schemes that boost the value of the equity they hold in their own companies. They have gorged themselves at the expense of the wider US economy and been able to do so because organised labour is so weak. There is no chance Trump will be championing new rights for unions, but he is the beneficiary of a raw form of populist politics.
Parallels can be drawn with the great recession of 2008 and 2009, the buildup to which was a prolonged affair. Asset bubble followed asset bubble. Financial crisis followed financial crisis. There were opportunities to change course after the peso crisis in Mexico, after the Asian financial crisis and after the dotcom bubble collapsed. The warnings were not heeded and the disease worked its way from the periphery of the global economy to its American core. Politics is following the same pattern. Trump could win.
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