Your Quarterly E-Zine
Edition 11 • December 2019

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In the early 19th century, according to Wikipedia ‘Luddites’ were a group of English textile workers and weavers who destroyed weaving machines as a form of protest. Luddites feared that the time spent learning their craft would go to waste as machines replaced their role in industry. 

Their gripe was not that new technology was being introduced, but that industrialists were using new machines to get around standard labour practices and were employing unskilled workers to operate them. The movement emerged during the difficult economic climate of the drawn-out Napoleonic War when food was scarce and becoming more expensive and wages were low.

In today’s era of globalisation and hi-tech transformation, wage gains are scarce and resistance to immigration is rampant – due to the fear of unskilled labour swamping the economy. A large section of the community feels ‘left behind’ and disadvantaged by the so-called progress that innovation and globalisation has generated. 

Rather than smashing computers or other machinery, the modern form of resistance, termed ‘neo-Luddism’ is being enacted at the ballot box, as we have witnessed in the UK and the US.

Arguably, the last 30 years has delivered the easiest gains from globalisation. The collapse of Communism in the early 1990’s coincided with China turning westward in opening up its economy to the rest of the world. Eastern-bloc Europe, China and India added around 3 billion to the global workforce. The developed world at the time numbered around one billion so the economic population quadrupled in a very short time.

This massive increase in labour suppressed wages which was taken advantage of by business owners. While boosting profits, cheap labour also reduced the incentive for businesses to improve their capital stock, thus contributing to the slow productivity decline over the past two decades. 

This trend in globalisation coincided with two other secular forces – aging working age populations and urbanisation. The 1980’s was the peak decade for Baby-Boomers to enter the workforce, further increasing the supply of labour and pushing up the neutral rate of unemployment. As technology increased, particularly in the production of food, the ongoing urbanisation trend continued which contributed to the declining fertility rates around the world.

While the last 20 years has seen an explosion in the free-trade of goods and services around the world, the prime beneficiaries seem to have been workers in emerging markets and owners of capital in developed economies. Successive monetary policy responses to the typical ‘boom-bust’ economic cycles have further advanced the wealth of asset owners and the wealth gap today is as great, if not more, than in the early 19th century.

Immigration has historically been the mechanism where those less well-off have been able to improve their futures, by moving to a wealthier country or region (urbanisation). Neo-Luddism is resisting the ability of migrants to ‘get ahead’. This is not stopping those from Africa and the Middle East from trying, even at the increasing risk of drowning in the Mediterranean Sea. 

Without free movement of people (labour), globalisation is being effected through other means – notably trade and technology. The rise of the tech ‘super company’ is creating the mother of all disruptions and putting a further squeeze on workers’ wages and incomes around the world. 

The rise of neo-Luddism, or more aptly called populism, is here to stay. The next decade or so will be about finding appropriate forms of compensation for those disrupted by the last three decades of global expansion and economic wealth disparity.

Kevin Stirrat
Head of Investment Strategy

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