Brexit: The Revenge Of The Precariat Over Davos Man by FIS Group
The Revenge Of The Precariat Over Davos Man
The turmoil that erupted after the June 23rd Brexit referendum has purportedly prompted many people who voted “Leave” to rethink their decision. New PM Theresa May has stated that “Brexit means Brexit,” dimming hopes that the referendum’s results would be reversed; but also inferring that Article 50 will not be invoked until next year. May has also appointed a number of prominent Brexit supporters to her cabinet, with David Davis heading the new “Brexit Ministry” and Boris Johnson installed as the Foreign Secretary. These pronouncements and appointments could indicate that she has succumbed to Brexit (despite her earlier opposition) or it could be a shrewd political strategy to allow its economic and political consequences to hit home with voters and force her former rivals to “own” the fallout if and when the public turns on Brexit and its proponents. If future opinion polls show that a decisive plurality of UK voters favor remaining in the EU, this would give the British government the excuse necessary to call for a second plebiscite.
As the earthquake which was the Brexit referendum plays out, there has been no shortage of commentaries on the market’s twists and turns from its aftershocks. In this quarter’s outlook we maintain our near-term market views as initially portended in the immediate aftermath of the referendum result (see our Market Insights Alert, “Beyond Brexit”). But we also focus on the bigger picture, to contextualize the broader implications of the Brexit vote to the political economies of Europe and the United States. Our regular sector and region specific investment outlook for Q3 will follow at the end.
The broader context is that Brexit and other manifestations of populist revolts are symptomatic of a global phenomenon which I am calling the Revenge of the Precariat vs. Davos man. By Precariat, I refer to the modern proletariat of the developed economies. A global “precarious class” of people who are out of work, continually searching for work, or underemployed. Based solely on their accumulation of material “stuff” or access to basic services, they are not poor in a global (or even historical) sense. Yet as has been true of most class-based revolts, relative privation and perceived marginalization within one’s community trumps absolute condition.
“Davos man”, a term coined by sociologist Samuel Huntington, is on the opposite side of the social spectrum. He symbolizes the global elite which congregates at the World Economic Forum to shape world policy. This exclusive forum, held every winter in the Swiss Alps, allows its participants to look down at the world from above: both because of the highaltitude, but also because of the high incomes and high status that characterize this jet-setting crowd. The Davos tribe believes strongly that their superior intelligence has earned them the right to lord it over the Precariat. Their thinking is best exemplified by Winston Churchill, who famously said that “the best argument against democracy is to spend five minutes with the average voter.”
The Remain campaign in the UK’s Brexit referendum was led by quintessential Davos men. Their starting premise was that elections are decided by core middle class voters who are averse to economic risk and allergic to radical lurches towards political uncertainty. Forebodingly, this is the same operating premise for the so called establishment parties in the United States. Like their US counterparts, they thought they understood the Precariat, who after all, could be identified, profiled and targeted by professional pollsters. The anxieties, hopes and priorities of the Precariat could be plotted on charts that would then be translated into simple messages. EU membership might thus be lodged in their simple minds as a proxy for security and continuity – the natural preference of the sensible majority.
To their astonishment, the ill-tempered Precariat began to view these presumptions with suspicion. The pro-EU camp was supported by an impressive coterie of Davos men: world leaders, economists, business leaders and even David Beckham. But Brexit leaders’ clever response was to convince the Precariat that they “have had enough of experts”. And in America, our orange haired counterpart is also staunchly antiintellectual and most cogently describes his plan to make America great again by exhorting us with “believe me”.
Even before the global financial crisis (GFC), prosperity had bypassed the Precariats. Today’s corporate giants, such as Facebook and Apple are far less labor intensive than their counterparts in 1950’s and 60’s, such as GM and Xerox, which propelled millions of the Precariat into the middle class. Many of their jobs have been replaced by technology, and increasing globalization led to a shift of income from low-skilled workers to high-skilled workers. These trends resulted in an overall decrease in the share of national income going to Precariat labor and a rising share of income going to the Davos men.
After the GFC, the Precariat were especially peeved at the apparent immunity of the elite from any consequences of their prior mismanagement that led to the financial crisis. And smoldering fears of economic vulnerability amongst the Precariat triggered a backlash against globalization, which had become an article of faith among the Davos tribe.
As a practical matter, Davos man long understood that the best way to lord over the Precariat was to manipulate their quaint attachments to their national and racial identities. The Davos insurrectionists have perfected these tactics. As Exhibit A, witness UKIP leader Nigel Farange’s “Breaking Point” poster pointing at brown skinned refugees photo-shopped from a photo from Kosovo. Trump’s scapegoating of Mexicans, immigrants in general, and Muslims are Exhibits B, C, and D. In the UK, the Precariat had many motives to vote ‘Leave’, but the most potent elements were resentment of the elite Davos politicians; rage at decades of social alienation, and a determination to reverse the tide of mass migration. Brexit therefore provided a singular opportunity for the Precariat to collectively raise their middle finger at generations of Davos men and policies.
Yet so far, Precariat’s “leaders” have not emerged from their own ranks, but rather, they are political opportunists who merely seem to have gambled on populism at the right time. After all, Brexit leaders, such as Justice Minister Michael Gove and former London Mayor Boris Johnson are both Oxford Men. Our orange-haired version, Mr. Trump is hardly Precariat.
However, we believe that there is still opportunity for Davos men to address the legitimate grievances of the Precariat before they find more radical voices whose disruption to the economic system could be truly destabilizing. Thus Brexit could serve as the turning point to prompt the Davos men to adopt policies which raise employment and boost wages, even if only out of enlightened self-interest.
At bottom, the current angst among the voters has been spurred by insufficient economic growth – in that there’s simply not enough of it to keep everybody happy while paying the debt and entitlements we have promised ourselves in old age. “Unconventional” monetary policies have been effective in stemming liquidity crises and propping up investment account balances through the so called “wealth effect”; but they are not designed to expand aggregate demand in the real economy in which the Precariat primarily preside. Additionally, some central banks like