By Jeremy Warner at The Telegraph
It’s all about uncertainty. From the now very real prospect of a Trump presidency to the still greater likelihood of Brexit – which could in turn trigger a domino effect of Eurosceptic rebellion across Europe – rarely has the political landscape looked quite so turbulent, unpredictable and therefore threatening to economic stability as it does now.
What even just a few weeks ago had been regarded by markets as little more than tail risks are all of sudden real and present “dangers”. The breakup of the European Union, Donald Trump in the White House – these things may actually happen, and indeed seem to be getting more probable by the day.
With most economies still struggling to return to pre-crisis norms, and the business cycle in many of them already quite long in the tooth, uncertainty about the political future has again soared up the list of key business concerns, causing many companies to go into lock down mode.
Normally, recessions are caused by over-heating, and consequent central bank action to jack up interest rates. But with rates already at close to zero, and no sign whatsoever of a boom, this seems to be an economic cycle which almost uniquely could simply die of the political turmoil threatening to engulf it.
Don’t think that at least in Britain, the uncertainty will lift once the referendum is out of the way. Absent of an overwhelming Remain vote, which seems very unlikely, the referendum will resolve nothing. A narrow vote for remain will only further harden the divisions within the ruling Tory Party, making gainful government, whose wafer thin majority has already repeatedly fallen victim to backbench rebellion, all but impossible.
And if the vote is to Leave, the uncertainty over Britain’s future relationship with the EU will only get greater still. Is it to be complete divorce from the single market, and if so, on what terms? Will the EU even survive such an earthquake? It may be years before we know.
In Britain, business investment is again stalling, having only comparatively recently returned to pre-crisis levels, while across great swathes of the Continent, where it never truly recovered in the first place, it threatens to go into a further tail spin.
Even in the US, recent jobs data has been depressingly weak, forcing Janet Yellen, chair of the Federal Reserve, to further postpone a second interest rate rise. Nobody knows what a Trump victory might mean for the US economy, but if he does what he’s been saying on the campaign trail, it’s unlikely to be good.
His threatened 45pc tariff on all Chinese imports would, for instance, undoubtedly unleash the mother of all global trade wars. And even if he loses, the alternative doesn’t look much better. Hillary Clinton staggered across the line this week to make this a contest between two presidential hopefuls with the most negative poll ratings in history. Is this really the best the self proclaimed leader of the Western world can do? A more dispiriting presidential race is hard to imagine.
As if to underscore all these uncertainties, Ben van Beurden, chief executive of Royal Dutch Shell, now Britain’s largest company by far after its recent merger with BG Group, has announced a series of measures for living with what he calls “a lower forever environment” – that is virtually permanently low inflation, low demand, and low interest rates.
In an effort to sustain the dividend and revive the share price, he’s further slashing costs and investment. Investors had better hope he succeeds. Shell plans to pay dividends of around £10bn this year, or an astonishing £1 for every £7.50 in total dividends paid in the UK, according to estimates by Capita Asset Services.
This marks an alarming degree of income dependence on just a single management team operating in what green campaigners view as an industry heading for terminal decline. They could be right. Shell is reducing investment by a further third, which is not exactly a vote of confidence in the future.
Nor is Shell alone. Globally, oil and gas investment has been slashed by $600bn in the past 18 months alone, with no let up in sight. Across the extractive industries as a whole, which historically account for a very high proportion of all capital spending by business, the damage is more extreme still.
Oil and gas industries are of course something of a special case. Their travails are as much a come down from the investment boom of the past, when everyone thought sky high commodity prices would last forever, as anything else, and can hardly be blamed on political uncertainty in Europe and America.
Yet they are also part of the same malaise. And it is this failure to invest which is at least in part feeding the cycle of political uncertainty, for it is indicative of a system which is not delivering. Disillusionment with Brussels in Europe and the rise of Donald Trump in the US – both come from the same script.
They are about loss of trust in government and big business, both seen to be run by remote, self interested elites unable to reform themselves or find solutions; they are about globalisation, seen by many in the West to benefit the few at the expense of the many; they are about mass migration, welcomed by business as a cheap source of labour but cursed by those whose lives it encroaches on; and they are about the long hiatus in post crisis wages and living standards, with the masses made to suffer while the financiers seem to go unpunished.
All these things have become potent threats to the established order, and in a self feeding cycle of contagion, they are making business leaders batten down the hatches for troubled times to come.
When even economic liberals such as Boris Johnson and Michael Gove promise all things to all men – more money for the NHS and schools, lower energy bills, less immigration, lower taxes, more housing, state aid for industry, to name but a few of the undeliverable promises made like sellers of snake oil to the hapless voters – we know that something has gone seriously awry.
A terrible confusion of ideologies and political positioning is elbowing rational thinking, centrist government out of the way, only to be replaced by….well, nobody knows. Is it any wonder that business is preparing for the worst?