30 ***^ Friday 16 August 2019 The Daily TelegraphI
n a 1964 US Supreme Court case,
Justice Potter Stewart famously
realised the difficulty of defining
hard-core pornography.
Conscious of setting an arbitrary
threshold for “obscenity”, he
admitted defeat, concluding: “Perhaps I
could never succeed in intelligibly
doing so. But I know it when I see it ...”
Economic populism is similarly hard
to define. Yet there is plenty of it
around in the US and, whether it be
Democrat presidential candidates
Elizabeth Warren and Bernie Sanders
on the Left or President Donald Trump
and Fox News host Tucker Carlson on
the Right, we should know it when we
see or hear it. The stakes mean it’s too
important not to.
Plenty of conventional descriptions
of economic populism are inadequate.
Often the term is used to signal
disapproval of a policy idea – a sort of
“neoliberalism” moniker for the age of
Trump and Brexit. Left-wing chattering
classes believe that both are “populist”
movements, and thus anything they do
must, by definition, be “populist” too.
For these commentators, populism is
just another term for demagoguery.
Others wrongly see populism as
synonymous with widely popular, but
misguided, “common sense” economic
ideas, such as “cutting immigration to
raise wages”. Its defining feature is
supposedly how it ignores or dismisses
the knowledge of professional
economists, exemplified by Michael
Gove’s declaration that “we’ve had
enough of experts”. Populism’s
opposite, in this view, is technocracy or
“expert rule.”
But neither of these definitions get to
the heart of trends dominating
American politics. Listen to Trump or
Warren long enough and clear patterns
emerge that trigger your inner
economic populism alarm.
Most obvious is the way issues are
framed. Populists pitch themselves as
true representatives of “the people”,
struggling to overcome some “elite”
who undermine “the people’s” interest.
Populism’s first characteristic is to
divide society between a supposed
broad interest and an establishment
elite quelling it.
Villains and their supposed crimes
can differ. For Elizabeth Warren and
Bernie Sanders, those rigging the
system to our detriment are the rich;
mega-corporations; fossil fuel
companies; big tech; and
pharmaceutical firms. They supposedly
buy elections, resist needed welfare
programs, rewrite regulations in theirPopulism on the Left and Right
is poisoning economic discourse
Reality intervened when Trump delayed tariffs on a host of imported Chinese goods, saying he didn’t want to hurt American shoppersRYAN
BOURNEH
ong Kong’s protesters
are “sprouts of
terrorism”, and their
violence must be
severely punished,
according to Beijing.
The Chinese Ambassador to the UK,
Liu Xiaoming, underscored this
sentiment yesterday, saying that China
will “never allow a few violent
offenders to drag Hong Kong down a
dangerous road”. But any crackdown
by paramilitary forces from mainland
China would throw the City’s role as
the most important Asian financial
hub into jeopardy. Will Xi Jinping
really put this status at risk?
Demonstrations began as opposition
to a bill allowing extraditions to
mainland China, but have turned into
the biggest challenge to China’s
authority over Hong Kong since
Britain handed the territory back in- Under the “one country two
systems” principle, Hong Kong
continues to have its own
governmental system, legal and
economic model.
However, some of
the City’s
residents believe
Beijing is
chipping away at
promised
democratic
freedoms.
Considering
the violence,
losses in the Hang
Seng have been
relatively subdued – it’s down about
11pc in the last four weeks – for the
simple reason that most companies
listed in the index do not do
business in Hong Kong. They are
mostly Chinese banks and other
state-owned entities.
The shares that have been hardest
hit are Hong Kong-facing businesses,
especially shopping and other
property groups. This is where the
potential for a bounce exists should a
peaceful compromise be reached.
Property acts as the foundation of the
city’s economy and current events will
hit demand. The nine largest real-
estate companies listed in the territory
have lost about H$446bn (£47bn) in
value since April, according to
Refinitiv data. Other losers so far have
been airlines and luxury-goods
companies. In the short-term, Hong
‘The city acts
as a bridge tothe rest of the
world andhelps funnel
money
into China’China talks
tough, but
it values
Hong Kong
Garry
White
ry
te
Kong’s economy may be heading for a
recession, but an even bigger concern
is that Hong Kong’s standing as a safe,
well-managed commercial hub will be
damaged irreparably should a violent
crackdown materialise. Under these
circumstances, the “one country,
two systems policy” would clearly lie
in ruins. Would this be an
acceptable price for this assertion of
political authority?
There are rising figures in the
Chinese government who are believed
to favour asserting full control over
the territory. This comes as the
economic importance of Hong Kong to
China diminishes as the mainland
economy grows. In the Nineties, Hong
Kong generated about a quarter of
China’s total GDP, this has now fallen
to around 3pc. It’s also getting easier to
purchase Chinese-listed equities
following the launch of the London-
Shanghai Stock Connect Scheme and
through trackers after two of the
world’s main index providers – MSCI
and FTSE – began including Chinese
mainland shares into their indices in
May this year.
The importance of Hong Kong to
China is not merely about the size of
its economy. The city acts as a bridge
to the rest of the world and helps
funnel money into the Chinese
mainland. Its legal system and
financial markets are also invaluable to
connect the country with the rest of
the world. This means it is more
valuable to China in its current form
than the territory’s GDP would
suggest. Any violent crackdown
would actually do significant damage
to China.
Could there be any benefit for
London? That seems unlikely right
now. Asian companies that do not wish
to list in Hong Kong are more likely to
go to New York – particularly the
technology companies. HSBC may
think twice about threatening to drag
its main listing to Hong Kong again,
but that debate appears to have
already been settled.
The most likely outcome is that
protests will subside without much
lasting economic damage, as was also
seen following the 2014 “Umbrella
Movement” democracy protests.
There was a similar movement in
equity prices then – and it proved a
good buying opportunity for brave
investors wishing to dip their toes into
Hong-Kong facing equities at the time.
However, although a resolution is
the most likely option, we clearly live
in uncertain times. The Chinese
threats seem severe, but they are
being aggressive to try and frighten
the protesters into submission. They
know that an escalation would result
in capital and expatriate flight, a
collapse in the property market and it
would almost certainly mark the end
of the territory’s glory days as a
financial hub boosted by its global
workforce. So for these reasons, a
Tiananmen-style outcome is not the
most likely, but the risk of such a
disaster persists. If China ultimately
decides direct intervention is
necessary, investors will take flight
and the market consequence will
be severe.Garry White is chief investment
commentator at wealth management
company Charles Stanleyinterests, stitch up trade deals that
undermine workers, rip off consumers
and profiteer off our health.
For Trump and Carlson, the
nefarious elites instead are the Chinese,
the cultural America-loathing Left,
useless past negotiators and presidents,
international institutions and, again,
big tech companies. Their misdeeds?
Selling out or ripping off American
workers on trade; wanting to flood the
country with migrants who hate it; and
stamping out conservative voices on
social media.
A key feature of populism as a “thin
ideology” is the idea of an elite working
against broad majoritarian interests.
Populists can disagree on who the
“elites” and “the people” they represent
are, although it’s remarkable how often
they agree that corporate America is an
enemy. The opposite of this populism
then isn’t elitism, but pluralism – the
idea that multiple identities and
interests can compete and coexist
within a free society.
Economic populism, almost by
definition, is therefore anti-market. A
healthy market economy is
characterised by individual choices,
voluntary trades and individuals
pursuing their own self-interests. Our
wealth comes from bottom-up activity,
not top-down decisions. Claiming that
a political representative of “the
people” knows better how to achieve
aggregate goals than a free people
erodes any sort of limiting principle on
government action. Paradoxically,
populism produces demands for newrestrictions on transient business
“elites” in favour of emboldening
another elite, government officials,
working in the politician’s name.
But what makes populism doubly
dangerous is the way its practitioners
imply there are big wins out there for
“the people” available at no cost.
Populists’ policy programmes claim the
elites are denying us something that
the self-styled people’s representative
can deliver without trade-offs, lostopportunities and unintended
consequences.
President Trump didn’t make the
case that building a border wall to
reduce illegal immigration would just
be net beneficial for US taxpayers. He
claimed that Mexico would pay for it
entirely. Putting tariffs on China wasn’t
justified as a necessary evil to bring the
Chinese into negotiations. Trump
claimed Chinese companies would
pay them, with no effect on
American consumers.
Bernie Sanders and Elizabeth
Warren promise major expansions of
the US welfare state in a European
direction – “wins” for ordinary people
that wealthy interests supposedly deny
Americans through their political
lobbying. Again though, both waveaway claims this will require European
levels of indirect taxation or that
anyone would suffer worse healthcare.
It is “the rich”, of course, who will pay.
Occasionally, reality intervenes.
President Trump this week delayed
additional tariffs on a host of imported
Chinese goods, saying he didn’t want to
hurt American shoppers before
Christmas. In one swoop, he blew his
“China pays” rhetoric out of the water.
Similarly, you could see Bernie
Sanders’ facial panic in a recent debate
when it was pointed out that paying US
government rates for all treatments
would lead to widespread hospital
bankruptcies.
But populist stances, once adopted,
are difficult to shake off. Once “elites”
have been identified as enemies, it’s
difficult to rehabilitate them and argue
their success strengthens society. Once
trade-offs have been dismissed, it’s
difficult to warn people that something
might prove costly to them.
Populism is poisoning the US
economic discourse. The very idea of a
majoritarian interest rides roughshod
on its liberal and limited government
inheritance. Its dismissal of trade-offs
ensures an arms race of “wins”, which
somebody else will pay for.
Let us hope that Americans, like
Justice Stewart, recognise “populism”
for what it is, and check its growth
before it’s too late.Ryan Bourne holds the R Evan Scharf
chair for the public understanding of
economics at the Cato Institute‘Listen to Trump or Warren
long enough and clear
patterns emerge that trigger
your inner populism alarm’Business comment
GETTYA bad deal may mean end of road for carmakers
J
aguar Land Rover, Britain’s biggest
car manufacturer, faces unique
challenges. The company is
heavily invested in the UK, where it
built 450,000 vehicles across its
portfolio of plants last year.
The most recently announced
investment is an estimated £1bn into
its Castle Bromwich plant to produce a
future range of electric vehicles,
alongside the Jaguar cars currently
turned out there.
JLR’s other UK plants – Halewood,
which produces the Evoque and
Discovery Sport; and Solihull, where
the Range Rover, Range Rover Sport,
Velar and F-Pace are built – all haveIn the short term the luxury marques will motor on
- but the industry faces an uncertain long-term future
between two and five years before
new models are due.
While JLR has a huge presence in
the UK, and Ralf Speth, the chief
executive, has stated that the
brand’s “commitment to UK
production remains firm”, it has
moved much work abroad. A giant
£1bn factory in Nitra, Slovakia, with an
annual capacity for 150,000
cars opened last year, and the
company has plants in China
and Brazil as well. Contract
manufacturers in Europe are also part
of its operation.
But its engine factory in
Wolverhampton, backed by
investment in electric powertrains,
means the company relies on the UK to
power its vehicles.
Speth has always said that JLR will
remain “British-engineered brands”
– a relief to the almost 15,000
engineers and designers at its bases in
Whitley and Gaydon in the Midlands
– and the marques trade heavily on
their heritage.
However, in the global world of
automotive manufacturing, this
doesn’t guarantee where cars will be
made if costs become onerous. For
example, the new Land Rover
Defender – the latest iteration of the
iconic car that trades heavily on its
ruggedness and British design – will
be built in Slovakia.
Justin Benson, head of automotive
at KPMG, says: “As UK manufacturers
continue to make Britishness a part of
the sales process they will have to
produce in the UK – for now. But
consumers will buy cars made
overseas if the marketing is right.”Rolls-Royce staying put
For BMW-owned Rolls-Royce there is
no question of the marque ever
leaving the UK and its current base in
Goodwood, West Sussex. Its boss,
Torsten Müller-Ötvös, has called such
a move “unthinkable”.
The luxury brand trades on its
British craftsmanship – and the price
bracket it operates in, combined with
the low volumes it produces, mean
that costs related to Brexit can be builtinto the price with customers unlikely
to complain. This means the
company’s 2,000 staff, who build
about 4,000 cars a year, have a
near-guaranteed future with
relocation a prospect that many think
would destroy the brand.
Britain also has an unrivalled sector
of niche manufacturers such VW-
owned Bentley in Crewe, Aston Martin
in Gaydon, and McLaren in Woking.
Servicing the luxury market, their
pricing and low volumes mean they
can generally absorb the likely impact
of Brexit, and their branding is so
heavily dependent on “Britishness”
that relocation is unlikely to ever be
an option.
Mini is another brand owned by
BMW, but one that operates in the
mass market. It is based in Oxford,
where 4,000 staff last year built
190,000 of the cars made famous by
the film The Italian Job. The plant wasWorkers at the JLR
site in Castle
Bromwich. The car
manufacturer has
reaffirmed its
commitment to
UK productionPArecently retooled at a cost of tens of
millions to be able to make electric
Minis alongside conventionally
powered cars. This was a relatively
small investment compared with the
£500m that has gone into the plant
over the past decade.
New models are not due for at least
three years, and the heavy investment
and scale of the plant means
production is likely to remain there
– though more of it could be shifted to
a sister plant in the Netherlands
servicing European demand while
Oxford supplies the rest of the world.
BMW also has an engine plant
employing 1,000 people at Hams Hall
near Birmingham, which has already
suffered from Brexit. It no longer
produces engines for BMW’s X3 car
which is assembled in South Africa,
with engines from German plants now
used to get around “rules of origin”
controls requiring a certain amount ofeach car to be built in the EU to be
eligible for favourable export
conditions. Production of engines for
cars made in the US has been
increased to help offset this.
The other BMW base is a pressing
plant in Swindon which produces
body parts, mainly for the Mini, but
also some components for the
company’s factories in Germany. If the
Mini Oxford factory were to relocate,
this plant would likely close.Status quo to remain
A no-deal Brexit will bring huge
challenges to UK carmakers but, in the
very short-term, little is likely to
change. Manufacturers are committed
to the UK for years to come, and
unwinding agreements early will be
costly and complex.
There may even be some benefits,
with the weaker pound making cars
built here cheaper to foreign buyers
– although import costs and tariffs
could well outweigh this.
“The fundamentals of the UK car
industry are strong,” says Mike Hawes,
the SMMT chief executive. “We have a
flexible workforce, excellence in
engineering and are highly productive
– if we get a good deal the future
is strong.”
But he warns that without a trade
deal “investment decisions that need
to be taken are likely to come in
weeks, not years”. He also cautions
that they aren’t likely to be positive for
Britain, with further efficiencies
required by the sector to compensate
for the impact of tariffs, customs and
border delays hard to find.
KPMG’s Benson takes a similar view.
“If we have five years of model
production and can see some sort of
trade deal in that time, then the car
industry should survive. Without it ...
the picture is not so bright.”
Everything hinges on a deal, agrees
Ian Henry of AutoAnalysis. “A good
deal and a good trading environment
(in other words, the market not
shrinking further globally) means we
could see production up to 1.6m in a
few years,” he says.
“A bad deal would mean production
could fall below one million with
Vauxhall and Toyota probably going,
JLR pushing more production to
Slovakia, and BMW rebalancing the
Mini towards Europe.
“If we get a bad deal, all bets are off.”ALAN TOVEY
INDUSTRY
EDITORY
£1bn
The amount Jaguar
Land Rover has
invested in its
Castle Bromwich
plant to produce
electric vehicles‘If we have a
trade deal,
then theindustry
should
survive.Without it ...
the picture is
not so bright’РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS