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Why The Political Populists Are Being Successful

Business, Economics, Environment, Europe, Sustainability, Technology, US
By John Richardson on 10-Oct-2016


By John Richardson

HERE are some sobering statistics that mainstream politicians and economic policymakers should take note of:

  • The real, inflation-adjusted incomes of two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014 compared with just 2% in the previous decade.
  • Only in London and the southeast region of the UK has real income per person risen above its level before the 2007-08 financial crisis.
  • Between 1999 and 2011 America lost almost 6m manufacturing jobs in net terms. At least one-fifth of the drop in factory jobs during that period was the direct result of competition from China. But, in fact, the decline of basic manufacturing in the US predates the rise of China: In the mid-1960s the pay of less educated men averaged 80% of college-educated ones, but by 2014 that proportion had fallen to 60%.

Nature teaches us that when there is a vacuum, it is quickly filled. The geopolitical history of the 20th century also teaches us this.  So today, in the absence of the right response from mainstream politicians to the declining prosperity of the vast majority of voters in the West, populist politicians have once again filled the vacuum.

What’s the answer? Spending more money on retraining workers seems to make a lot of sense. In the US, this is an urgent priority: Just 0.1% of the country’s GDP is being spent on job centres, retraining schemes and employment subsidies. This compares with an OECD average of 0.6%.

Across the West in general, major initiatives are needed to address not only job retraining, but also the innovation necessary to create the new goods and services required by a rapidly ageing population. I haven’t heard argument that I believe effectively discounts the evidence that both the quantity and nature of demand is being radically reshaped by the retirement of the Babyboomers.

Governments also need to focus on better provision of basic needs, such as better roads, bridges and infrastructure in general.

Water is another basic need. Focusing on the US again, some one trillion gallons of water is leaking every year from broken mains pipes, leaking kitchen and bathroom faucets, malfunctioning toilets and faulty sprinkler systems etc. This is equivalent to 9% of the water needed to solve California’s drought crisis.

There is a major water crisis in America: The US National Resources Council suggests that 10 major cities in the States are at risk of major water shortages in the relatively near future.

And in Europe, at least 11 % of its population and 17 % of its territory had been affected by water scarcity, putting the cost of droughts in the region over the past thirty years at €100bn.

But in the developing world, water scarcity is an even bigger issue, according to the World Bank. It estimates that by 2050, lack of water in regions such as the Middle East and North Africa could result in the loss of as much as 6% of their GDP. Kim Yong Kim, the World Bank’s president, said:

If countries do not take action to better manage water resources, our analysis shows some regions with large populations could be living with long periods of negative economic growth.

The chemicals industry can be part of the solution, along with politicians. For example, just think of linear-low density polyethylene (LLDPE) drip irrigation pipes. Almost 60% of fresh water goes to crop irrigation, with many countries charging nothing for its use. The great benefit of LLDPE drip irrigation pipes is that they direct water directly to the roots of plants, hence they save water.

Drip irrigation pipes are of course only one end-use application for LLDPE. The world’s LLDPE producers therefore need to look at more actively managing demand for all downstream LLDPE applications in this same way.

But even if our industry more effectively manages its own demand, what if mainstream politicians continue to allow the populists to fill the vacuum?

To again use LLDPE as an example, the risk is that we end up in a global trade war that will make it much harder for those producers with major surpluses to export their surpluses by 2020. This is when a big quantity of new capacities are scheduled to have been brought on-stream.