For some at Davos there was a clash of world-views, epitomised by Emmanuel Macron and Donald Trump. The former promoting economic liberalism. The latter promoting economic protectionism. However, what we’ll see as the year unfolds are the underlying similarities in the positions of Macron and Trump.
Why? They are both pragmatists before they are ideologues. They also believe that prioritising business is key to their re-election – because elections are won and lost on the strength of the economy.
For Trump, ‘America First’ can be distilled to ‘Business First’. He is reviving the old adage, that, ‘what is good for GM, is good for America’. His focus is almost exclusively on jobs. Which he regards as prioritising business friendly policies, symbolised by his tax reform bill. This also happens to be good politics, as it can drive economic confidence which is good for growth, jobs and a feel-good factor – at least in the short-term.
The Trump Administration is adding further stimulus through a large increase in defence spending (ongoing) and infrastructure spending (upcoming). Critics claim that this is unnecessary and/ or fiscally reckless. It will increase inflationary pressures which could trigger rises in interest rates. Good for some, but not for the equity markets. The reliance on deficit-financing could also create large fiscal imbalances, but these may only start to show after the next general election. Which could allow Trump and the GOP and/ or Pence and the GOP to ride a wave or two of positive economic news making them harder to beat in 2020 than many assume.
Now look at President Macron. The style is different, but his basic approach is similar. He is prioritising the economy and business, not least from the USA. Note the new ‘love-in’ with Lloyd Blankfein.
The Macron message: capitalism is good. Gone is the mix of French indifference and arrogance. Marking a sharp contrast not just with the socialist Hollande but the conservative Sarkozy. Macron also promises to use his mandate to drive much needed reform in order to modernise and transform the French economy. In short, he is more Trump in economic substance, more Trudeau in style.
The two Presidents are not polar opposites on economics. By the end of 2018 both Trump and Macron could be presiding over economic success stories. With Macron’s Republic acting as a magnet for inward European investment and Trump edging closer to his ridiculed 4% GDP target. It is also worth noting, however, that Trump personally could finish the year in much a worse place, as a result of the investigation currently headed by Robert Mueller. To the point where his Presidency has been derailed and there is a crisis of confidence in the GOP - and more broadly the body politic - which has a negative impact upon the economy.
The UK’s Conservative Government and Prime Minister is in a precarious place – which will be compounded by Brexit negotiations with her Party at home and with EU leaders abroad.
The logic of Theresa May’s decision to hold a snap election in 2017 – to strengthen her hand in the various negotiations - was undone by her performance, her manifesto and misreading the national mood. Despite the calamity of collapsing her majority she has defied political odds by remaining in office - unchallenged. How?
The Party cannot agree who should replace her. This is largely due to the deepening rivalry between ‘Leavers’ and ‘Remainers’ along the toxic fault-line of Brexit. If there is a consensus, it suggests Mrs May remains in post until March 2019: Brexit D-Day. At which point Mrs May can depart having carried out her pledge to take the UK out of the EU.
This timetable is optimistic and faces severe disruption during 2018: First, pollsters believe that the Party will fare badly at local elections in May. Second, the Party seems set to fracture over the terms of any Brexit Bill and Mrs May could fail to carry parliament on the terms for withdrawal from the EU.
On this basis, her authority is weakened to the point of triggering one of several outcomes, that could constitute a national crisis: i) Mrs May stays; ii) Mrs May resigns; iii) Labour’s leader Jeremy Corbyn, is invited to form a government.
Even if Mrs May fails to put any terms to parliament during 2018 – not inconceivable – it only postpones the inevitable. Moreover, the next general election will in effect become a referendum on whatever terms are ‘negotiated’.
If they are perceived to be weak, and/ or there is a growing groundswell against withdrawal from the EU, then the Conservative Party carries the can at the ballot box.
One way to avoid this, is for the Party to decouple the issues and suggest a second referendum on the terms of withdrawal and offer a binary choice. Whilst this has the potential to split the Party, it could stave off a general election at which the Party is blamed for a Brexit mess and comprehensively beaten.
Signum Global Advisors LLP is publishing separate papers to explore: i) Brexit Events of 2018; and ii.) Labour’s Path To Power
Digital currencies are proving to be reliable in one thing: wrong-footing pundits. They’re also leaving sage analysts at a loss as to predict their plight.
However, whilst digital currencies dominate media headlines, it is the underlying technology, blockchains, that will emerge to share the headlines in 2018 and beyond. So we should be bullish about blockchain technology even if we are bearish about bitcoin and other digital currencies.
Blockchain is a cryptographic unalterable transaction ledger that is the foundation of Bitcoin, making the digital currency the first application of blockchain technology.
Digital currencies have shown that it is possible to use server networks to build and maintain valuable shared data – in this case a shared ledger of account balances – without the need for a trusted, central banking authority acting as guarantor. Permission less blockchains e.g. Bitcoin, whose networks are open to anyone, has the potential to form a new kind of network in which we won’t need to contract to – or trust – banks, corporations, or governments with our data.
Whilst the implications are not yet fully comprehensible, awareness of the power of blockchain technology is growing, as is the realisation that blockchain is much more than bitcoin.
The applicability of the technology can be developed to support more activities than trading and speculating. For some, ‘it has the potential to become the system of record for all transactions’ (see: Iansiti and Makhani, hbr.org). And it is not just Wall St that is investing in using the technology. For instance, several aid agencies, including the United Nations’ World Food Programme, have already started to explore blockchains for aid payments.
Sending money across borders using digital currencies potentially reduces fraud - recording every step of the transaction – and lowers transaction fees. “Smart contracts” allow aid to be delivered with conditions: for example, payments are released only if recipients can confirm they’re the correct beneficiary. Unicef and the World Bank are both set to launch blockchain projects this year.
‘The blockchain opportunity’ is a direct challenge to political and business leaders to innovate and strengthen civic society and/or gain competitive advantages. The most innovative NGOs, governments and companies will make breakthroughs in 2018 which could have a lasting impact.
Facebook can continue to make mistakes in 2018 safe in the knowledge that it is ‘Too big to fail.
The social network has no real competition and as such the business and the management is not being punished for mistakes and mishaps that would have sunk other CEOs or brands.
The market is pricing-in hundreds of millions of fake accounts; fake news scandals; and scandals linked to anti-social and extreme user content. Such is the size and dominant market position of Facebook, that such flaws and wrong doing, perceived, or otherwise, are not widely regarded as being market moving.
Fake posts and manipulation by foreign government(s) to pervert democracy has however, wrong-footed the Board. The investigations into the extent and impact of Russian involvement in democratic elections in US (and Europe) could harm Facebook more than the Kremlin. It may reveal that the business a.) does not know how many ‘users’ are real and how many are fake; and b.) it is unprepared to commit resources required to properly police fake accounts and anti-social content.
The cumulative impact of this may destabilise investor and consumer confidence in the platform. However, the business, if not the Facebook brand, is well placed to weather a social backlash as users may migrate to the Facebook owned platforms, Instagram or WhatsApp. The Facebook business model could also withstand a political backlash in the short-term. As regulatory agendas, especially in this area, take a substantial period of time to bite (if at all).
The longer-term impact could be more profound. Even if the company avoids an acute crash due to a collapse in consumer or investor confidence, we could be witnessing the peak for the Facebook brand as confidence and belief begins to drain away. It is already caught between being unfashionable for teenagers and too juvenile for adults. Failure to transcend generations is a slow death sentence for any brand.
The tipping point, however, will only really come when there is an attractive alternative. In other words, without competition, the Facebook site can continue to grow. However, even if consumers remain loyal (by default or by design), if confidence among investors deteriorates, it could lead to a shakeup at Menlo Park resulting in a new role for Mark Zuckerberg and a new CEO of Facebook. Which could wider ramifications for confidence in the tech industry.
This is a popular and tempting comparison, but it is misleading. It misstates the economic significance of data and more broadly the role of the internet.
The most striking similarities are the concentration of ownership and economic influence. The internet is creating an age of economic liberation, but it is also concentrating economic power in the hands of a few companies. Ditto oil.
These similarities soon give way to sharp differences. The business model of the oil producers was and is similar to other commodity companies. In short: extract a rare commodity and sell it for as high a price as possible. However, the data pioneers, have changed economic models. Their businesses are revolutionising and rewriting the way we think about business and capitalism.
Unlike oil, the mining and generation of data is not heavily regulated. Data has no fixed price. Data is not finite. Plus, we own our data (before we choose to give it away.) So, we are the product.
Moreover, most of us are at liberty to exercise a choice in how we create and consume data. (There are exceptions to this rule, notably the billions of people living in China, where any such freedoms remain largely illusory.)
For the vast majority, the only chance to profit from oil directly is to buy shares in one of the Majors. Oil companies enrich their supply chain, but this was and remains largely linear. This does not apply with Big Tech. The consumer can profit from data through share ownership. They also have the option to use data for their own ends, think laterally, start businesses and profit accordingly.
The internet giants create value for millions of companies in their supply chains, plus many more through a myriad of indirect supply chains or networks. As a result, they connect diverse ranges of buyers and sellers and build new layers of economic opportunity and value. Google, Amazon and others have lowered the barriers to entry in almost every aspect of the economy, increasing socio-economic productivity and wealth.
We hope that a further distinction will prove to be the case: there will no wars fought for control of this commodity. However, what we’ve seen – and will see – is the power of platforms built on data, becoming more and more potent in national and geo-politics.
This will be the subject of a Signum Research Paper in Q1 2018.