As a director on the boards of Barrick Gold Corp. (TSX:ABX), Barclays Bank, Chevron and Seagate Technologies, economist Dambisa Moyo knows firsthand the things that are currently weighing on the minds of company directors and CEOs.
Foremost among them? Global economic uncertainty. “We are in the middle of headwinds that we have never seen before,” says Moyo.
Appearing as a keynote presenter at the Institute of Corporate Directors annual conference in Toronto in June, Moyo delivered an insightful but decidedly bearish presentation—even acknowledging she probably had her audience wanting “now to have a drink of something stiff.” Her true intent, however, was to ensure that no one in the room went home unaware of the serious and seemingly intractable risks that underlie the current unease.
“Why is this time different?” she asked. Because “the models of politics and economics that we relied upon in the 20th century are no longer viable.”
Moyo began by reviewing the current economic and geopolitical situation, including such circumstances as: slow GDP growth that’s expected to persist indefinitely; companies returning money to shareholders rather than reinvesting for the long term, and delisting from public markets; growing ineffectiveness of traditional monetary policy tools; the presence of 65 million refugees, the most since the Second World War; and the fact that there is now $12 trillion in government debt trading at negative interest rates.
The core of her talk—the part that had everyone needing a drink—focused on six trends or situations that point to heightened uncertainty and a worsening of current circumstances and offer no obvious reasons to think that any recovery or remedies are at hand. These are:
• Automation: Forecasts indicate that a large chunk of the current service-sector workforce in the developed world will be rendered job- less due to automation within the next 10 to 15 years. And while some may have faith in new things emerging that we can’t yet see, Moyo says, “We have to base policy on what we know to be sure today, and what is true is that jobs are being lost.”
• Demographics: The world’s population is growing by 60 million—“the equivalent of one UK”—each year and the curve isn’t expected to level out until we’re at 11 billion in 2100. Yet in the developing world— where 90% of people live today—growth is already inadequate, politics unstable and the environment under stress.
• Income inequality: A topic few discussed 25 years ago, it is now an agenda item worldwide. Moyo says the crux of the problem is demonstrated in fact that the U.S. and China, the two largest economies with two completely different systems, have almost exactly the same levels of income inequality. “The expectation is that income inequality will continue to widen and we simply do not have a suite of tools to address it.”
• Natural resources scarcity: To illustrate this point, Moyo cited a meeting she attended in China with President Xi Jinping, during which he stated this issue was his greatest challenge. The reason: demand and expectations of higher living standards, especially in the super-populous developing world, are unrealizable given the capacity of global resources. This trend will assuredly force resource companies to further exploit the most extreme geographies.
• Global debt: Auto loans, student loans, housing loans, personal loans and government loans are pushing debt-to-GDP ratios to extreme highs; paying that down requires the kind of strong economic growth we’re no longer achieving. More defaults are looming, both in developed and emerging markets, and “the consequences of that are obviously global,” says Moyo.
• Stalled productivity: It gets less attention than capital and labour, yet productivity contributes more to economic growth than those two factors combined—and it’s sagging. “Across developed countries in the last 15 years, virtually every sector has seen a decline in productivity, even in the world of technological advancement. Particularly labour productivity. It’s really a drag on economic growth.”
Moyo told the audience her concerns are heightened further by the fact that the policy response to these problems has been de-globalization. “Rather than come together to try and resolve these problems, we are seeing public policy makers and governments decide to become much more isolationist, much more protectionist.”
A primary driver of this response, she says, is short-termism—a phenomenon to which most corporate directors can relate. “Public policy makers are constantly, and very rationally [given the election cycle], pandering to short-term solutions at a time when all the problems I’ve outlined are long-term and intergenerational.”
While Moyo offered no magic-bullet solutions, this final observation probably provided the audience with the most applicable takeaway to their own companies and boardroom deliberations. Namely, in the face of such uncertainty, look for the big picture, lobby for broadly based policy responses and try to invest in things that are true today and that might still be true in 20, 30, 50 or more years.