Are we Witnessing a Tectonic Shift in the Global Economy (amongst other things) – An Insight into Socionomics
The foundations of Global Trade have been severely shaken as a Tariff war ensues between the USA and China. At the same time right wing and nationalist political views are becoming increasingly popular in Europe, views that arguably mainstream politics wouldn’t have associated themselves with, a decade ago, are now the driving force behind movements like the Brexit. Equally, it feels like that the views of the society are increasingly becoming polarized; just look at how divided American views have become during and post the last elections.
We all know the dire implications, any sustained escalation of trade wars and deglobalisation can have on the global economy, let alone the economy of an exporting nation like NZ; but are the emerging trends in political and social views seeding changes to a different economic world order, to how we have known it, at least for the last 2 decades. Also, is there a link between politics, economy and the popular views and preferences of society?
According to a little-known subject of Socionomics, it is the prevailing collective mood of society that drives and regulates the overall theme of social behaviour, ranging from politics and economy, the financial markets as well as what is popular in arts and music.
According to Investopedia “Unconventionally, Socionomic theory proposes that leaders and their policies are virtually powerless to change social mood, and that their actions in the aggregate express social mood rather than regulate it”.
Simply put, this theory would suggest that the prevailing mood in America has propelled an administration like Trump’s to be in power and to pursue nationalistic trade policies.
According to Socionomics, a subject pioneered by Robert Pretcher, as the collective social mood oscillates between times of optimism and pessimism, it causes a shift in trend across the many facets of society. More importantly though, the theory proposes that the collective mood is the cause and not the effect, of these economic and political factors.
Optimistic periods bring with it “good times” (for most) through expansion of credit and economy, asset price increase, liberal views and inclusive leadership styles, acceptance of individuality and diversity (gender, cultural, religious), moderate or centrist political parties, globalisation and opening of borders and cooperation between countries for example the formation of the European Union.
Pessimistic periods bring with it the opposite; polarisation of political and social views, authoritarian leadership styles, less tolerance of diversity, right wing and nationalistic political views and economic protectionism through trade barriers, increase in the number of sovereign secession and dictatorship states, and economically, contraction in economy and in the availability of credit, with dark themes permeating into arts, music and entertainment.
Looking at the events of last few years, one can possibly argue that some of the characteristics of pessimism as suggested by Socionomics, is on the rise. How many of us would have thought that Trump would win the Republican party nomination and then proceed to win the Presidential election. Whilst a trade war against China was vaguely plausible for some, who would have thought that US would place tariffs on the European Union who, in return, are in the process of finalising a retaliatory response. Europe’s political power is shifting from the left (socialist influenced) to right and possibly far right, putting at risk the sovereignty of the European Union – with far-right policies favouring secession from EU (proposed Brexit being a form of secession). Also, reportedly polarisation of views and the amount of hate content is on the increase online.
What could this mean to a business owner in NZ – we feel that the trade war is arguably the immediate risk that Kiwi businesses need to pay close attention to. Just last week there was a newspaper article that suggested that China is actively seeking to increase self-sufficiency in infant formula sector. Countries involved in a trade war will invariably be looking to make up for lost markets and revenues, which they can do by increasing consumption locally of locally manufactured products. This type of policy could introduce tariffs at large, coming at the expense of all trading partners.
An export strategy that is over reliant on markets like China and possibly Europe, which are considered the holy grail of exporting, may need to be reassessed. It may be time to think export diversification into some other large economies like India, Middle East and Indonesia.
As for Socionomic theory, it certainly provides an intriguing perspective from which to view the unfolding political and economic events. No doubt, that the world of global trade is changing, and so is the political landscape, evident by what is happening in Europe and elsewhere. But is the collective social view of society shifting from optimism to pessimism? And can it have a severe impact on the Global Economy? I guess we will have to wait and see.
Shakti Harduar is the founder of Paradigm5 Partners, a boutique advisory and investment company that helps NZ businesses to grow and build scale. They offer advice on geographic expansion with a particular focus on Indian Subcontinent and Middle East. Their services include strategic advisory, capital raising and getting businesses investor ready. Paradigm5 Partners also helps owners build value in their businesses pre-exit or succession.
If you would like to talk to us about any of the areas mentioned in the blog, feel free to contact us by email on info@paradigm5partners.co.nz.