By Economic Strategist, Hottinger Investment Management
When French people take to the streets, the world usually notices. It was the uneasy alliance of Robespierre’s Montagnards, Brissot’s Girondins, and working class ‘sans-culottes’ that in the sixty years between 1789 and 1848 stirred the liberal, egalitarian but ultimately nationalistic Giovine Europa movement across Europe. These inspired the likes of Giuseppe Mazzini in Italy and the Chartists in England. We see the legacy of these efforts in the flags of countless nation states around the world which have adopted a tricolour motif of some description, embodying – at least in theory – the values of liberté, égalité and fraternité.
For the last nine weeks, French cities have been sites of mass protests. People who feel that the Parisian elites in government are not listening to them have been donning yellow high-visibility vests. Ostensibly, the catalyst for the protests was the levy of new taxes on fuel that would lead to intolerable increases in the cost of living, particularly for those in the provinces. But it has since transpired that the group has come with a somewhat amorphous list of demands that range from lowering taxes to raising state spending on social security, defaulting on public debt, leaving the European Union and reducing immigration.
The gilets jaunes movement is often compared to the Paris student uprisings in the 1960s against consumerism and American imperialism; indeed some of the current participants say they took part in both. But this analogy is not convincing. The gilets jaunes movement seems to have something more in common with the 18th century resentment against the fermiers-généraux – the unpopular urban tax farmers who collected levies on salt (a factor in the revolution of 1789) – and the 19th century nationalism that culminated in the uprisings of 1848.
The difference now is that while bourgeois urban liberalism was the ascendant and liberating force railing against the arbitrary and oftentimes oppressive rule of the ancien regime, it is urban liberalism that today’s gilets jaunes see as the oppressor.
There is a new cleavage in the politics of nation states between the city and the region, and it is not clear that the nation state – that device of earlier revolutions – can contain it. World cities such as London, Paris, Shanghai and Berlin have more in common in wealth and culture with each other than their respective hinterlands, and this has all served to undermine the communal feeling that many, particularly those of the hinterland, still have.
Part of explanation is economic. Since the 1980s, cities have, as a rule, grown much faster and from a higher base than distant regions in a process that economists call agglomeration. It makes sense to have your business in – for example – London or Dublin if your suppliers, employees and customers are there too. There are valuable services in London because people want to live there. And people want to live in London because they can access valuable services. It’s a virtuous cycle and it will probably survive acts of nationalist assertion such as Brexit.
Figure 1 shows that parts of the UK that saw slower GDP growth per head between 1998 and 2016 were more likely to support Brexit. An interpretation of the slogan ‘take back control’ that defined the Brexit vote is that it is about redressing the regional imbalance in wealth between city and region that has made life harder for those who do not live or work in the city.
A large part of the explanation, however – especially in rich developed countries – is essentially not economic. It’s about identity and community.
Western societies have – for quite some time, and certainly since 1998 – solved the economic problem. Almost everyone has a roof over their head, access to heating, good food, advanced healthcare, and jobs that can buy consumer delights and a generous supply of leisure. In this sense, Western countries have succeeded in meeting the speculations of John Maynard Keynes, who predicted in 1930 that the societies of his grandchildren would be multiple times richer than his generation. He was wrong in suggesting we would use the wealth dividend to cut work to fifteen hours a week and spend the time making art, literature and love. The activities of the Bloomsbury Set have remained a niche pastime.
However, the spread of material comfort has facilitated a rise in the post-materialist politics of autonomy and self-expression within large cities, which are the flag carriers for globalisation. Some opponents perceive urban-liberal attitudes on issues relating to gender and multiculturalism as merely extensions to urban-liberal attitudes to the market. The same globalist, city-centred elite which oversaw and celebrated deindustrialisation in regional towns and cities is also blamed for eroding long-established community ties. Yet, even here, wealth is not the determining factor. Many rich ruralists want little to do with this brave new cultural world because they have little contact with it. It was, after all, an alliance of affluent Southern eurosceptics and the post-industrial working class that delivered Brexit.
For many voters, cultural developments have been positive and welcome, but for those – rich or poor – who live on the edge of this new politics and feel excluded, change is threatening and manifests in unrecognisable towns, disturbed customs, precarious employment and in toto the perception of contempt from the city for the way they live their lives. As Robert Putnam wrote in his seminal Bowling Alone, “social dislocation can easily breed a reactionary form of nostalgia”. It’s no surprise, then, that we are seeing growing support for parties that define themselves in opposition to globalisation and promote a communitarian politics that strike a deep chord.
The rise in populism can be understood as a reaction to the decline of religion in Europe, the spread of post-materialist urban values, and the drain of power and prestige from regional working-class industrial centres in favour of the new, service-dominated centres of the global economy. Populism can take expressions in both left- and right-wing forms of communitarianism that are rooted in national sovereignty. In this sense, one should see the likes of Jacob Rees-Mogg and Jeremy Corbyn not just as throwbacks to a distant past but as thoroughly contemporary advocates of the nationalist zeitgeist.
The late Benedict Anderson wrote in Imagined Communities, his exegesis on nationalism, that “for whatever superhuman feats capitalism is capable of, it found in death and languages two tenacious adversaries.” Capitalism, through open trade, can bring the peoples of the world closer together, but through its core methods – specialisation and the division of labour – it offers little to placate the spiritual demands that we all have. Individualism and cultural diversity are answers to this, but so too is solid nationalism.
By creating a mass market for the many vernacular languages of Europe in the decades after the creation of the Gutenberg press in the 15th century, capitalism facilitated the decline of Christendom and replaced it with the imagined communities we call nations. The nation is a disinterested and – ideally – immortal entity. For most of its constituents, the nation neither chooses nor is chosen, and because it moves as one through history and offers a way to handle the fatality and contingency of life in the way the great religions have done, it can call for and expect sacrifices from its members.
The nation therefore both transcends the individual and embodies their collective customs, hopes and imaginings. Being a meaningful entity worth believing in, the nation remains an essential comfort. The idea of the unchanging nation – even if it has little basis in reality – offers a layer of emotional security and convinces some that, whatever our plight, we are all in it together.
The distinction between the liberal city and the conservative region is a simplification; it is possible to be a conservative in the city or a liberal in the region. But the cleavage between the two groups exists and could be here to stay. To the extent that the tensions within nation states remain unresolved, they will continue to lead not just to movements such as the gilets jaunes, but also to events that can disrupt the world economy. One can see the election of Donald Trump, the rise of populism in Italy and the more nationalist politics of Xi’s China in this context. The common thread in all of these is the liberalism of the city and the anti-liberal nationalism of the region.
Brexit is part of this theme too, but perhaps the concept is misplaced. The trend for the 21st century may not be the removal of a nation state from a club of nation states such as the EU, but the detachment of major cities from the nations that made them. The stark difference in how those in London voted in the EU referendum compared to those in other regions reflects the different outlooks of each place.
These huge political trends will continue to affect the economic and investment environment; they are interesting in their own right, but we cannot afford to take our eyes off of them.
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